Economic Survey Highlights Food Inflation Concerns Amid Favorable Crop Projections

The Economic Survey anticipates FY26 headline inflation aligning with RBI projections, focusing on the impact of essential vegetables on food inflation. Despite global trends, India faces persistent inflation. Positive crop estimates and strategic reforms target long-term price stability amid adverse weather events and rising international oil prices.

The Economic Survey, presented in Parliament on Friday, aligns with the Reserve Bank of India's (RBI) forecast for headline inflation rates at 4.2 percent for FY26 and 4.8 percent for the current fiscal year, ahead of the Union Budget announcement set for Saturday. Notably, the survey highlights the significant influence exerted by Tomato, Onion, and Potato (TOP) on driving food inflation in India.

Excluding these three volatile vegetables, the average food inflation for FY25, spanning April to December, was recorded at 6.5 percent — a substantial 1.9 percentage points lower than the overall food inflation rate. Likewise, the headline inflation rate, after stripping out TOP, stood at 4.2 percent, about 0.7 percentage points below the recorded headline inflation rate.

Despite a global trend towards declining food inflation, India's food inflation, monitored through the Consumer Food Price Index (CFPI), remains high due to supply chain disruptions and adverse weather conditions affecting production. However, the survey anticipates that decreasing global commodity prices, alongside a normal southwest monsoon in 2024, will bolster water reservoir levels for sufficient irrigation, particularly benefiting rabi crop production.

Preliminary agricultural estimates for 2024-25 foresee a 5.7 percent uptick in Kharif food grain production, with rice and tur yields projected to rise by 5.9 percent and 2.5 percent, respectively, compared to 2023-24. These factors could contribute positively to cooling food inflation in the upcoming months.

Nonetheless, rising international vegetable oil prices pose potential risks to food inflation. The government is adopting structural reforms for sustainable price stability in key food commodities, focusing on advancing research into climate-resilient crops to enhance yields and reduce production losses.

To alleviate India's continual deficit in pulses and oilseeds, the government is promoting cultivation in rice-fallow regions. Building a robust data collection and price monitoring system is pivotal, as the government aims to improve tracking of prices, stock levels, and storage across various administrative sectors.

The survey emphasizes the exacerbating effects of extreme weather events such as cyclones, floods, droughts, and unseasonal rains on food price volatility, highlighting the ongoing challenges in stabilizing the food inflation landscape. (ANI)

(With inputs from agencies.)