What are the causes of persistent high food inflation in India? Comment on the effectiveness of the monetary policy of the RBI to control this type of inflation.

Climate Shocks

With about half the sown area rainfed, the weak 2023 monsoon and 2024 heatwaves hit vegetables and pulses.

Perishable Supply Chains

Thin cold storage and many intermediaries make tomato, onion and potato prices spike.

Demand and Imports

Rising incomes shift demand to milk, pulses and fruit faster than supply grows, while heavy edible oil imports pass on global prices.

Limited Direct Effect

A 250 basis point repo hike to 6.5% by February 2023 did not stop food inflation rising in FY24, since rates cannot fix supply.

Anchoring Expectations

Policy curbs second-round effects on wages and expectations; average inflation fell from 6.8% to 4.9% under inflation targeting.

Growth Cost

High rates against a supply shock slow credit, which is why the Economic Survey 2023-24 suggested targeting inflation excluding food.

Supply Tools

Buffer stocks of onion and pulses under the Price Stabilisation Fund, open market sales of wheat and curbs on rice and wheat exports gave quicker relief.