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. (150 words)
India has been witnessing persistent high food inflation in recent years, driven by supply chain disruptions, erratic weather, and rising input costs (2023). This inflation impacts the economy and increases the cost of living.
Causes of Persistent High Food Inflation:
- Supply Chain Disruptions: COVID-19 and geopolitical tensions caused transportation issues and supply shortages, increasing food prices.
- Erratic Weather Patterns: Unseasonal rains and droughts impacted agricultural output, reducing supply and inflating prices.
- Rising Input Costs: Increased fertilizer, fuel, and labor costs directly contributed to higher production costs for farmers.
- Demand-Supply Mismatch: Population growth and changing dietary preferences increased demand, while production lagged.
- Global Price Trends: Rising international prices for commodities like edible oils influenced domestic prices due to import dependency.
Effectiveness of RBI’s Monetary Policy:
- Limited Control on Supply-Side Factors: While RBI’s interest rate hikes can reduce demand, they don’t address supply-side disruptions.
- Inflation Targeting: The RBI’s inflation-targeting framework (4±2%) has helped in moderating inflation expectations but has limited impact on food inflation.
Conclusion: RBI’s monetary policy can control demand-driven inflation but is less effective for supply-driven food inflation, requiring targeted government interventions.
