Government’s reluctance to import wheat can upset MPC’s calculations

livemint.com:

₹300 a kg in many parts of the country a few weeks ago, did not call for a response from monetary policy. By last month, with the arrival of fresh harvest, tomato prices had crashed to less than ₹5 a kg in farmer markets such as in Maharashtra.

The statement released by the Monetary Policy Committee (MPC) suggests that it is betting that the sharp increase in inflation seen in July, which was driven largely by tomato and other vegetable prices, and corrected partly in August, will show further easing in the data for September, when vegetable prices moderated considerably. The reduction in LPG prices earlier this week are clearly part of this calculus, and there’s comfort to be drawn from declining core inflation i.e.

CPI inflation stripped of food and fuel. However, the central bank is less convincing on its inflation forecast, which it has kept unchanged for FY24 at 5.4%.

There’s hardly a forecaster that has not raised their inflation forecast, adjusting for the evolving ground realities affecting pricing pressures. Just this week, the World Bank increased its retail inflation forecast for India for 2023-24 to 5.9% from the 5.2% estimate made in April.

It’s inescapable to anyone who cares to read the unmistakable signs that the country’s food grain production has suffered in the last two years due to back-to-back weather shocks, and regardless of the government insisting that there is record production of wheat and rice. It’s also clear that the upcoming assembly polls in wheat-producing states such as Madhya Pradesh are top-most on minds in New Delhi which leaves it with no appetite for antagonising the sizeable vote bank of farmers by importing wheat, the global prices of which have halved after the bumper harvest in