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A PROJECT REPORT ON FOOD INFLATION

Submitted to:
Mrs. Renu Verma Professor JKBS,Gurgaon

Submitted by:
Apoorva Saxena Deepshikha Jha Nibedita Mohanty Manjari Manisha Rahul Jain Rajeev Kr.Deepak Tanuj Khokhar Tushar Singhal Santosh Singh

CONTENTS

1. Introduction 2. Trends of food inflation in India 3. Reasons of food inflation 4. Measures of controlling food inflation 5. Government policy 6. Article on food inflation 7. Conclusion 8. Reference

DECLARATION WE hereby declare that the project work entitled A REPORT ON FOOD INFLATION submitted to the JK BUSINESS SCHOOL, is a record of an original work done by me under the guidance of MS RENU VERMA, professor, of JKBS ,GURGAON, and this project work has not performed the basis for the award of any Degree or diploma/ associateship/fellowship and similar project if any.

Apoorva Saxena Deepshikha Jha Nibideta Mohanty Manjari Manisha Rahul Jain Rajeev Kr.Deepak Tanuj Khokhar Tushar Singhal Santosh Singh

CERTIFICATE OF THE GUIDE

This is to certify that the Project Work titled A REPORT ON FOOD ANALYSIS is a bonafide work of GROUP 5 , carried out in partial fulfillment for the award of degree of PGDM in JK BUSINESS SCHOOL under my guidance. This project work is original and not submitted earlier for the award of any degree / diploma or associate ship of any other University / Institution

Name: Signature:

ACKNOWLEDGEMENT We owe great thanks to many people who helped and supported me during the entire project. Our deepest thanks to MS RENU VERMA the Guide of the project for guiding and correcting various documents of mine with attention and care. She has taken pains to go through the project and make necessary correction as and when needed.

Signature: Date:

INTRODUCTION

What exactly is food inflation? This term has been tossed around over the last several months, as the price of many food products has risen considerably. By definition, food inflation is exactly what it seems. Consumers are now paying more for inflated food prices. In other words, if your monthly grocery budget was Rs.400 a year ago, you are now likely paying closer to Rs.500-plus, buying exactly the same products.

TRENDS OF FOOD INFLATION

Here in following graph,the horizontal line describes year wise data & the vertical line describes yoy(year over year).The red line defines rate of CPI index(customer price index),blue lines defines the food items while the green lines defines the non food itema(diff. house hold items ).We can see in the graph inflation rate for food prices in 2008 ,it was nearly abt 25% while it was 15% in year 2005.The change in % in 3 years 105 which is a great margin

Here in this graph ,the horizontal line describes food product while the vertical line describes % of growth in prices.We are taken various food product.blue line defines the data of 2008-09 & the pink line defines the data of 2009-10.If we compare both the data ,there is a significant growth in food prices of 2010.lets take the example of food article,onion etc.

This chart explains how Indian spends their money. As evident from the chart above, nearly 43% of the personal disposable income goes into food products. Unfortunately, this is the segment which is experiencing highest inflation. A high food inflation ensures that consumers have to cut back on their spending (on non-necessary items). This in turn will impact the consumption part of the GDP growth

REASONS FOR FOOD INFLATION IN INDIA

Food inflation is a direct result of the triad of late monsoons, drought and flood in some regions of the country this year. Consequently, Kharif output has been officially stated to be lower than last year, with significant deficiencies in production of food grains, pulses, and oil seeds Other than rice and wheat, for which the country has sufficient stocks, carryover stocks for pulses, oilseeds and sugar are not adequate to help country tide over this predicament; essentially indicating a supply driven crisis. Governments handling of public distribution system in the current fiscal especially in the light of drought situation Structural drivers in form of implementation of NREGA, which, though worthwhile, is essentially a consumption expenditure, consequently resulting in too much money floating in the system; and Large number of intermediaries in agriculture supply chain & their unrealistic margins thereof. Over the top inflation currently being registered is said to be happening primarily because of the interplay of the above factors.

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GOVERNMENT POLICY
CRR: CRR is cash reserve ratio. it is ratio of cash which commercial banks had to keep with RBI. During inflation when there is excess supply of money in the economy,so in order to control inflation RBI will increase the CRR . by this commercial banks had to keep more money with the RBI and there would be less money left with banks to give to general public so interest rate of bank would also get high due to this and due to high interest rate less people will take loan and due to less money in market , so it will automatically decrease the purchasing power of the consumer and so this will decrease the demand of the goods and hence it will control the food inflation. Interest Rate: It is rate at which commercial bank gives loan to public During inflation when there is excess supply of money in the economy,so in order to control inflation RBI will increase the interest rate . By this commercial banks will give money to public at high interest rate and due to high interest rate less people will take loan and due to less money in market , so it will automatically decrease the purchasing power of the consumer and so this will decrease the demand of the goods and hence it will control the food inflation. Marginal Requirement: In marginal requirement commercial banks takes some security from public while giving loan. So when farmers aur businessman takes loan from bank they keep some food material with bank in form of security. SO during food inflation bank will raise this requirement due this increase in requirement farmes would not like keep goods in granary

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rather than they will like to sell in market so that they can generate inome. since farmers would sell all food in market rather than storing, hence this will result in increase in supply of food in the market and due to increase in supply in market it will automatically control the food inflation

MEASURES TO CONTROL FOOD INFLATION

Government should commit buying cereals directly from farmers to reduce the benefits garnered by middle men which suppose to be garnered by farmers himself and should increase the subsidies for food grains and reduce administered prices of grains. Potatoes and tomatoes , most other vegetables rot quickly so it is better to get them to market before they go bad , to get around this problem is to build better roads and transport facilities for farmers to bring their produce to market from hinterland. The Government also needs to unload the wheat inventory it has in its storage locations. This will have an on the prices

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ARTICLES ON FOOD INFLATION Article 1

IRT: Onion Prices Widen North-South Divide Onion Price Surge Roils India
N.R. Bhanumurthy, an economist at government-run think tank, the National Institute of Public Finance and Policy, said a speculative build up of stocks by traders could have also led to the unexpected price rise. "Next week, it [food inflation] could be even worse when the full impact of the spike in onion prices will be seen," he said. Prices of onions have shot up recently due to unexpected rains in the western province of Maharashtra, a key supplier of the commodity. The vegetable's price is a sensitive political issue because of its impact on the country's poor people, forcing the federal government to take a slew of measures after facing severe criticism and public outcry. The government has scrapped the import tax on onions and also banned exports, while directing two state-run cooperatives to sell the vegetable at 35 rupees ($0.77)-40 rupees a kilogram, compared with 60 rupees-70 rupees in wholesale markets. Finance Minister Pranab Mukherjee said these measures will help bring down onion prices, while an improved production of pulses will contribute to cooling inflationary pressures. "This year, pulses production may be 2 million tons more than what it was last year," Mr. Mukherjee said. "That means to that extent it will have its impact and pulses' prices have already started coming down," he added.

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Cabinet Secretary K.M. Chandrasekhar, the most senior civil servant, said the government will boost onion supplies from Karnataka and Gujarat provinces--where produce has been good--to meet the shortfall in other parts of the country. Separately, Junior Farm Minister K.V. Thomas said state-run trading companies have been asked to import onions from whereever available and that a fresh arrival of onions from the southern Karnataka province are expected in the next 15-20 days. Consumer Affairs Secretary Rajiv Agarwal said retail prices of onions will fall in the next few days. He also said that the government is considering subsidized imports, but didn't elaborate. The high reading of food inflation bolsters chances that the Reserve Bank Of India may have to end its pause in rate increases when it next meets late January to review the monetary policy. The RBI kept its key lending and borrowing rates steady at the most recent review on Dec. 16, but said that there is an upside risk to its inflation estimate of 5.5% by the end of March. It has raised the rates six times since March 2010. Economists largely expect the RBI to hike the two rates by 0.75-1 percentage point in 2011 as inflation remains intolerably high; global commodity prices--particularly India's largest import, crude oil--are on the rise. The inflation data showed vegetable prices jumped 11% in the week to Dec. 11 from the previous week, while potato prices rose 10%. The index for primary articles, which includes food as well as non-food items, rose 1.8% to 187.9 in the week to Dec. 11 from the previous week. Prices of primary articles were up 15.35% from a year earlier, after climbing 13.25% in the week ended Dec. 4.

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Article 2

Food inflation declines after 5-week ascent

Food inflation in India softened in the early part of January after spiking to nearly a two-year peak in late December, providing some sort of a relief to both policymakers and consumers alike. However, it still remains at pretty elevated and may not be able to dissuade the RBI from increasing interest rates at its next policy meeting on January 25. Annual rate of inflation in the sensitive Food Articles space decreased in the week ended January 1, data released by the Government showed on Thursday. This was the first decline in food inflation after rising for five consecutive weeks. Inflation in the Food Articles group fell to 16.91% in the week ended January 1 from 18.32% in the preceding week, the Union Commerce & Industry said today. Inflation in the food articles space was at 19.65% in the year-ago period. Inflation in the Primary Articles group also declined to 17.58% in the week under review from 20.20% in the week ended December 25. Inflation in the Primary Articles space was at 19.83% in the comparable period last year. Inflation in the Fuel & Power group also inched lower in the week ended January 1 to 11.53% from the previous week's level of 11.63%. Inflation in this space was at 5.87% in the week ended January 2, 2010. Inflation in the Non-Food Articles group stood at 20.49% in the week under consideration versus 22.39% in the previous week. Inflation in this group stood at 12.94% in the year-ago period.

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Inflation in the Minerals group was at 16.70% in the week ended January 1 as against 30.58% in the week ended December 25. It was at 35.86% in the comparable period a year earlier. On an annual basis, onions became costlier by 70.7% in the week under review, whereas on a week-on-week basis, the increase was only 1.73%. The year-on-year increase in vegetable prices was 70.73% while on a weekly basis it was 3.84%. Fruits turned costlier by 17.71% year over year, while milk prices increased by 13.20% on an annual basis during the week under review. Egg, Meat & Fish became pricey by 16.70% compared to the year-ago period. Potatoes turned cheaper by about 1.67% annually while inflation in Cereals was almost negligible year over year and that in Pulses fell by nearly 15%. Annual inflation in Rice stood at 1.34% while wheat prices fell by almost 5%. India's benchmark WPI inflation rate slowed in November from the year-ago period due to moderation in prices across key categories, data released by the Government showed on Dec. 14. The point-to-point inflation, as measured by the WPI, came in at 7.48% in November as against 8.58% in the previous month. The figure was in line with consensus estimates of 7.5%. But, the Government revised upwards September's final WPI inflation rate to 8.93% from the preliminary projection of 8.63%. The Reserve Bank of India (RBI) has set a target of 5.5% headline inflation by the end of the current fiscal year in March 2011, although it sees the risk to the upside. The central bank might have to increase key policy rates at its next meeting in on January 25 after leaving them unchanged on Dec. 16. It has so far hiked interest rates six times since March
India Infoline News Service / 18:45 , Jan 13, 2011

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Article 3
NEW DELHI: Food inflation slowed for the second consecutive week in January but inflationary pressures remained as prices of onions and vegetables still rule high. Data released by the commerce and industry ministry on Thursday showed food inflation rose to 15.52% in the week ended January 8, slowing from the previous week's 16.91%. It had shot up to a year-high of 18.32% in late December, prompting the government to announce measures to cool prices. But economists said the impact of the steps would be negligible. Food inflation has remained above 12% for the past five weeks. Economists said food prices are likely to moderate over the next two months but overall inflation remains high as there is uncertainity over the extent of decline in food prices. "I don't think the RBI or the government can draw any comfort from this weekly drop in food inflation," said Samiran Chakraborty, economist at Standard Chartered Bank. He said the RBI is expected to raise interest rates by at least 25 basis points when it reviews monetary policy on January 25. The RBI has raised interest rates six times in 2010 and is widely expected to raise rates again. PM Manmohan Singh has said he was confident that prices would stabilize by March but certain factors were beyond the government's control. FM Pranab Mukherjee met state finance ministers on Wednesday as part of his pre-budget consultations and urged them to

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review local levies which add to prices of food articles and hurt smooth movement of essential commodities. Some economists say high food price inflation may be spilling over to other sectors. Headline inflation, which slowed to 7.48% in November, shot up to 8.43% in December due to high food prices. The RBI has consistently cautioned against inflationary pressures in the economy as global commodity prices have soared in recent months. Economists say calming prices has emerged as a larger objective for the RBI than nurturing growth. The index for food articles group declined by 1.2% to 190.6 from 192.9 for the previous week due to lower prices of fish (4%), poultry, chicken, fruit ad vegetables (3% each), and jowar (2%). But the index for non-food articles rose by 2.1% to 177.1 from 173.5 for the previous week due to higher prices of cotton (9%), sunflower (5%), castor seed and raw rubber (3% each), guar seed (2%) and cotton seed, raw silk and groundnut seed (1% each).
Times of India .Jan 21, 2011

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Article 4

Costlier onion, milk drive food inflation to 10-week high

Food inflation sharply surged for the fourth consecutive week in midDecember to touch a 10-week high. Egg, meat dearer Inflation in food items, based on the annual Wholesale Price Index, zoomed to 14.44 per cent on an annual basis in the week to December 18, up from 12.13 per cent a week ago, with items such as onions, milk, fruits, along with eggs, fish and meat products contributing to the spurt. The Primary Articles index was up 17.24 per cent in the latest week compared with an annual rise of 15.35 per cent a week earlier. The index for Food Articles in the week to December 18 increased 1.1 per cent from the previous week while fuel products rose 0.8 per cent on a sequential basis, according to data issued Thursday by the Ministry of Commerce and Industry. Pricey fruits On a year-on-year basis, fuels surged 11.63 per cent against the previous week's annual rise of 10.74 per cent. Among food items, inflation in vegetables gained about 5 per cent from the previous week and about 30 per cent year-on-year, with onion prices up 3.5 per cent on the week and 40 per cent on a year-on-year basis. Fruits were up 22 per cent, while milk surged 18 per cent on a year-onyear basis during the week under review. The group including eggs, meat and fish clocked 20 per cent inflation during the latest week.

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Expressing concern over the rise, Finance Minister Mr Pranab Mukherjee indicated the Government will take more steps to check rising prices. We are looking into it. So far as onion is concerned we have taken care of it... but the fluctuation in milk, fruit, vegetables and certain commodities have contributed to the inflation, he told reporters here. Food articles contribute about 14 per cent in the WPI. We are waiting for the full monthly figure (for December, which will be out in the second week of next month). Weekly variations are there. Whether these are corrected in the coming week that is to be seen, Mr Mukherjee added. Headline inflation for November had eased to 7.48 per cent on a yearon-year basis from 8.58 per cent in October, but still remains well above the RBI's tolerance level. The central bank expects the overall inflation rate to ease to 5.5 per cent by the end of March. DIESEL PRICE HIKE According to analysts, an extremely severe winter in most of Europe and the US has led to a surge in prices of international commodities, including crude oil. There are indications that the Government might hike prices of diesel in the near future in the light of the surge in global prices, which would further stoke inflation.

Our Bureau ,Dec 30

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Article 5

Food inflation up beyond expectation, at 18.32%.

Food inflation jumped to 18.32 per cent for the week ended December 25 on the back of high prices of vegetables, particularly onions. Prices of onion for the period skyrocketed 23 per cent on a week-on-week basis. Food inflation stood at 14.44 per cent in the previous week. Primary article inflation rose to higher-than-expected 20.2 per cent from 17.24 per cent. Fuel group figures remained unchanged at 11.63 per cent. The rise in food inflation has been mainly on account of 58.58 per cent rise in prices of vegetables in the wholesale market. Among the individual items, onion became dearer by 82.47 per cent on annual basis, while egg, meat and fish became costlier by 20.83 per cent, fruits by 19.99 per cent and milk by 19.59 per cent. Meanwhile, in the non-food category, the prices of fibres and minerals have climbed by 35.53 per cent and 30.58 per cent, respectively. According to experts, the Reserve Bank of India is now likely to step in and reconsider tightening rates. "The figures for December 25 week are beyond expectation. But the inflation figures may taper off slightly for the next couple of weeks as vegetable prices cooled down marginally," said Samiran Chakraborty, chief economist at Standard Chartered Bank. The International Monetary Fund, in its annual advisory on Wednesday, advised the Reserve Bank to maintain a tight policy to tame inflation. "India's economic growth is expected to remain above trend in the coming year, and inflation measures are in the 8.5 per cent to 10.5 per cent range," the IMF said in its report.

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Last week, Finance Minister Pranab Mukherjee expressed concern over inflation and indicated the government will take more steps to check rising prices. "We are looking into it. So far as onion is concerned we have taken care of it... but the fluctuation in milk, fruit, vegetables and certain commodities have contributed to the inflation," he had said. Pointing out that the rise was not because of the base effect, he had said the price rise was real.
NDTV Correspondent & Agencies, January 6, 2011

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REVIEW OF THE ARTICLE

Basically the articles talks about the rising onion prices in india. Main concern is the steep rise in food inflation rate during December 2010.due to this central may have to tackle the situation more promptly. Also its affecting the traders and dealers who were expecting some decrease in food prices during the month. One of the major reasons may be due to heavy rains in some parts of the country. Other can be like the illegal stock maintained by traders. These problems may leed to the political imbalance. However, it still remains at pretty elevated and may not be able to dissuade the RBI from increasing interest rates at its next policy meeting on January 25.this pattern came in view during start of January 2011.food articles, primary articles, inflation in fuel and power have come down but commodities like onion , fish and meat have grown in prices. The Reserve Bank of India (RBI) has set a target of 5.5% headline inflation by the end of the current fiscal year in March 2011, although it sees the risk to the subside. Food inflation slowed for the second consecutive week in January but inflationary pressures remained as prices of onions and vegetables still rule high. Economists said food prices are likely to moderate over the next two months but overall inflation remains high as there is uncertainity over the extent of decline in food prices. Some economists say high food price inflation may be spilling over to other sectors. The index for food articles group declined by 1.2% to 190.6 from 192.9 for the previous week due to lower prices of fish (4%), poultry, chicken, fruit and vegetables (3% each), and jowar (2%). But the index for non-food articles rose by 2.1% to 177.1 from 173.5 for the previous week due to

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higher prices of cotton (9%), sunflower (5%), castor seed and raw rubber (3% each), guar seed (2%) and cotton seed, raw silk and groundnut seed (1% each). Food inflation jumped to 18.32 per cent for the week ended December 25 on the back of high prices of vegetables, particularly onions. Prices of onion for the period skyrocketed 23 per cent on a week-on-week basis. Food inflation stood at 14.44 per cent in the previous week. Primary article inflation rose to higher-than-expected 20.2 per cent from 17.24 per cent. Fuel group figures remained unchanged at 11.63 per cent. The rise in food inflation has been mainly on account of 58.58 per cent rise in prices of vegetables in the wholesale market. the prices of fibres and minerals have climbed by 35.53 per cent and 30.58 per cent, respectively. The International Monetary Fund, in its annual advisory on Wednesday, advised the Reserve Bank to maintain a tight policy to tame inflation. Reasons: 1. Main reason is the imbalance in the monsoon and heavy rains in some parts of the country. 2. Unexpected rains in western part of India, lead to price rise of onion basically. 3. Hike in fuel prices continuously 4. Unauthorized stock maintenance by traders. Solutions 1. To control the import and export duties on food items 2. Controlling the fuel prices, or just making sure they do not rise in a continuous manner. 3. RBI should take strict action for controlling the bank rates. 4. Unauthorized stock should be distributed in the public for sale

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5. Government should release some amount of the buffer stock in the market.

CONCLUSION

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Its been few years that the country is facing the problem of food inflation .with the fluctuating pries of pulses, vegetables etc. it is the common man who is facing the problem of food inflation. Government is taking measures to curb the problem of food inflation in the country either by policy or by other mean .Taking stick action against people black marketing and hoarding .Changes in policy like CRR and interest rate have helped giving relief to the people of each economic level. The change in tax rate, avoiding the middle man etc is little other measure taken by government. Economist has given that the problem of food inflation will persist for another decade but some says with change in the policy of which everybody is looking forward to in March may help in giving relief from food inflation. With government taking such fruitful steps it is supposed that the food inflation will be controlled.

REFERENCES

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1. Economics times 2. Times of India 3. www.netindia.in 4. www.news.google.co.in 5. www.profit.NDTV.com 6. Money control 7. Business standard

8. http://indianblogger.com/puzzling-inflation/