High food inflation to ease as India develops, says RBI MPC Member

Ashima Goyal, a member of the RBI’s Monetary Policy Committee (MPC), stated that as India develops, the problem of high food inflation will become less severe. She highlighted that modern supply chains with diversified sources can swiftly address sudden spikes in prices of specific food items.
Goyal emphasized the significance of increasing agricultural productivity to stabilize agricultural prices for non-inflationary growth, given the high share of food in the household budget in India.
“As India develops, this problem (high food inflation) will get less severe, for a number of reasons. Modern supply chains with diversified sources respond quickly to large spikes in specific items,” she explained.
Goyal also noted that advanced economies rarely experience significant spikes in tomato or onion prices, thanks to their diverse geographic regions and better-integrated markets, which source from different regions to mitigate climate change-induced food price spikes.
Furthermore, as the weight of food in consumption declines and food consumption diversifies, the impact and size of future food price shocks will decrease, she added.
Under flexible inflation targeting, expectations are better anchored, Goyal pointed out. She highlighted the example of East Asia, where food prices were allowed to rise, and agriculture was subsidized only after food budget shares fell.

“India unfortunately opted for a distorting system of subsidies to farmers as well as to consumers,” she remarked, noting that this was costly for India’s large population and reduced the government’s space for agricultural investment.
Goyal acknowledged that agricultural productivity is rising, supported by a policy reset and the availability of new technologies. However, she stressed that further policy adjustments are necessary.
According to official figures, retail inflation declined to a five-month low of 4.85 percent in March, mainly due to a cooling down of food prices. Inflation in the food basket was at 8.52 percent in March, down from 8.66 percent in February.
RBI Governor Shaktikanta Das recently stated that baseline projections indicate inflation moderating to 4.5 percent in 2024-25, from 5.4 percent in 2023-24, and 6.7 percent in 2022-23.
“India unfortunately opted for a distorting system of subsidies to farmers as well as to consumers,” she remarked, noting that this was costly for India’s large population and reduced the government’s space for agricultural investment.
Goyal acknowledged that agricultural productivity is rising, supported by a policy reset and the availability of new technologies. However, she stressed that further policy adjustments are necessary.
According to official figures, retail inflation declined to a five-month low of 4.85 percent in March, mainly due to a cooling down of food prices. Inflation in the food basket was at 8.52 percent in March, down from 8.66 percent in February.
RBI Governor Shaktikanta Das recently stated that baseline projections indicate inflation moderating to 4.5 percent in 2024-25, from 5.4 percent in 2023-24, and 6.7 percent in 2022-23.