Budget 2018 might increase India’s food prices

Indians might receive high food bills as finance minister Arun Jaitley’s budget recently has paved the way for a sharp rise in prices of agricultural commodities. Budget 2018 promised to hike the minimum support prices for farm products and to liberalise their export. Arun Jailey said, “The government is committed to ensure that farmers get at least 1.5 times their investment. India’s agricultural export potential is as high as $100 billion (Rs 6.38 lakh crore) against the current $30 billion (Rs 1.9 lakh crore). Exports of agricultural products will be liberalised.”

The Narendra Modi government’s move to help farmers out of a farm crisis is going to push up prices of food and vegetables. Going into a national election in about a year, the government has lived up to the consensus expectation of a populist budget. The distress in the sector and unemployment were the two weakest points in the government’s scorecard for the last four years. Retail inflation in India is already on an uptrend due to the recent spike in crude oil prices, which India imports to meet about 80 per cent of its needs.

Chief economic advisor Arvind Subramanian said, “Inflation was all higher than expected, albeit not threateningly so, reflecting, in part, higher international oil prices—India’s historic macroeconomic vulnerability.” Overall retail inflation, as measured by the consumer price index (CPI), hit a 17-month high in December 2017, well above the Reserve Bank of India’s target of 4 per cent. In this basket, food inflation is already at its highest since mid-2016.