On Monday, a member of the Prime Minister’s Economic Advisory Council, Poonam Gupta, expressed her disappointment in the manner in which “monetary policy is held hostage by vegetable prices”. She termed monetary policy as a “blunt instrument” to address vegetable inflation. “Surely, our economy, which is more than $3 trillion, can manage its vegetable prices better than it has. These shocks, which hold the policymakers’ attention unduly, I would say… can be addressed better,” she said at a discussion hosted by the Ananta Centre on the upcoming Union Budget. The “shocks” that Ms. Gupta was referring to are the highly volatile retail and wholesale prices of food products, especially vegetables. These shocks jolt the Indian economy every year. During some years, vegetable prices skyrocket and burn a hole in the pockets of consumers. During others, they crash, leading farmers to dump their produce owing to negative returns.
Chart 1 depicts the overall retail inflation and vegetable retail inflation every month between January 2014 and November 2022. Compared to vegetable inflation, overall retail inflation remained steady in the period considered, oscillating between +1.4% and +8.6%. However, vegetable inflation wildly swung between -22% (deflation) and +60%.
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If we examine the January 2014-November 2022 period, vegetable prices hit a peak in a month and then rapidly declined. This led to a trough a year later. This was again followed by a rapid ascent leading to a newer and much bigger peak, a year later. The gap between peak inflation and peak deflation has also widened in recent months pointing to an increase in the volatility of a commodity which was already volatile.
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Chart 2 shows the retail inflation of select vegetables in the December months of each year. The graph further establishes the volatile nature of vegetable prices. Every odd year there was inflation of vegetable prices, and every even year there was deflation. This cycle was seen across all vegetables, which means that the trend is not confined only to onions, tomatoes and potatoes — the three vegetables produced and consumed widely.
Not only were the prices alternating, but the degree of inflation and deflation too recorded extreme variations. For instance, in 2015, carrot retail inflation was 7.97%; in 2017, it was over 50%. In 2018, the price of cauliflower decelerated by 4.4%; in 2020, it recorded a 22% deceleration.
Chart 3 shows how inflation varies within a year in select vegetables and in select States. Chart 3A shows the price of a kg of potato during all the months across the last seven years in Dehradun, Uttarakhand. Chart 3B shows the same for onions in Thiruvananthapuram, Kerala. Chart 3C shows the same for tomatoes in Ranchi, Jharkhand. All the three charts exhibit a common pattern. The prices of vegetables were the lowest in the summer months of March to May. They slowly began to rise in the south-west monsoon months of June to September. Then they peaked in the autumn months of October and November or sometimes in December. Prices started to cool down in the late winter months of January and February.
This pattern shows that vegetable prices are tied to the kharif and rabi harvest cycles and the resultant demand-supply gap in the markets. They also depend on the failure of crops which leads to reduced supply amid increasing demand. Also, a sudden surge in production may lead to a glut, with prices sharply decreasing due to high supply.
vignesh.r@thehindu.co.in and rebecca.varghese@thehindu.co.in
Source: Ministry of Statistics and Programme Implementation (MOSPI), National Horticulture Board
Also read: Data | Rice, wheat push up inflation, but Southern States keep prices low
