Food inflation in India has been a significant economic concern since the 2000s. Food inflation, the increase in prices of food commodities over time, a part of inflation in India, has significantly affected the living conditions of the majority of the Indian population, especially the lower-income groups.
A study shows that these lower-income groups spend more than 66% of their income on food, and the average share is 58–59%.
The rise in food prices is calculated using the Wholesale Price Index (WPI) for primary (cereals, pulses, fruits, and vegetables) and manufactured (sugar and dairy products) food products or the Consumer Price Index. The Highest food Inflation periods were recorded in 2006–2013, when it increased on average by more than 10%. It is primarily driven by both global and domestic factors such as drought-induced shortages in food supply, an increase in agricultural wages, and rising international prices. In 2010, food inflation meant Indian consumers spent approximately 20% more compared to the previous year to maintain the consumption level. However, a bulk of Indian households could not afford to increase their food expenditure to compensate for the increasing prices.
In addition to economic implications, food inflation in India has far-reaching consequences for public health, nutrition, and social equity. Increasing prices of essential food items have disproportionately impacted low-income and vulnerable populations, contributing to rising rates of nutritional insecurity. Rural and urban populations experience food inflation differently, with rural landless laborers facing greater hardship due to their lower purchasing power and seasonal incomes. The phenomenon also has gendered effects, as women and children tend to bear the brunt of reduced food intake, while men, being the main providers of the family, consume more food. Therefore, during periods of food inflation, women and children are more likely to suffer from anaemia and undernutrition due to limited food allocated to them.
Background Measuring food inflation in India Wholesale Price Index (WPI) refers to the average selling price in the wholesale market received by domestic producers of goods. On the other hand, Consumer Price Index refers to the average selling prices from the consumer's perspective. CPI and WPI can vary due to taxes, subsidies, and distribution costs. Historically, food Inflation in India has been measured and analysed using the Wholesale Price Index (WPI) because of its availability. India did not have a unified Consumer Price Index (CPI) for both urban and rural areas before January 2011 with base year of 2010. The Reserve Bank of India officially adopted CPI as the key measure of food inflation in February 2015 following the recommendations of Patel Committee Report.
In practice, the Wholesale Price Index in India represents prices from various stages of the value chain. According to National Statistical Commission, WPI may correspond to farm-gate, factory-gate or mine-head prices, or in different cases, primary and secondary markets, or at various wholesale and retail levels. WPI measures food inflation based on the weighted average of primary food products and manufactured food products. The WPI basket, based on the 2004–2005 base year, consisted of 676 commodities such as fuel(15%), metals(10.7%), chemicals(12%), textiles(7.3%), and food items(24.3%). Within this basket, primary food products—including cereals, pulses, milk, meat, fruits, and vegetables—accounted for 14.3% of the total weight, while manufactured food products like butter, ghee, milk powder, bakery goods, and sugar held a weight of 10%, bringing the total weight of food items to 24.3%.
In Addition to WPI, four Consumer Price Indices were officially published in India for different segments of the economy. These included the CPI for Industrial Workers (CPI-IW, base year 2001), Agricultural Labourers (CPI-AL, base year 1986–87), Rural Labourers (CPI-RL, base year 1986–87), and Urban Non-Manual Employees (CPI-UNME, base year 2001). The CPI for food was under the CPI for Industrial Workers (CPI-IW), which comprised six main components - food, clothing, fuel and lighting, housing, tobacco and intoxicants, and miscellaneous. A significant difference between WPI and CPI was that CPI assigned a much larger share of weight to food, ranging from 49 to 65% compared to WPI 41-59%, within their food index.
Historical trends Overall trends From 1994–1995 to 2004–2005, the average rate of food inflation according to WPI (base year 1993–1994) was about 6% annually. During this period, food inflation was recorded as relatively moderate, ranging from 4% to 7.5% for most food items. The lowest inflation rate was observed in sugar, while the highest rate was recorded in fruits and vegetables.
After 2005, the prices of food began increasing more sharply, leading to a spike in 2008 after global and domestic food commodity prices surged. During the same period, prices of non-food items declined by 1.76% between 2008 and 2009, while food prices increased by more than 12%. In January 2010, wholesale food inflation neared 20%. On average, from 2006 to 2009, food inflation was over 80% higher than inflation in non-food commodities. This marked a reversal from the 1993–2004 trend, when food prices had increased more slowly than non-food prices.
Between 2009–2010 and 2010–2011, food inflation peaked at around 16%. It then slightly declined to 12.8% in 2013–2014. Across the period from 2006–2007 to 2014–2015, the average inflation rate for all major food products was significantly higher than during 1996–1997 to 2005–2006. Pulses experienced a threefold increase in inflation, while cereals, vegetables, milk, eggs, meat, and fish saw their rates approximately double.
Specific product trends In terms of specific product trends, milk contributed the highest rate of inflation of 16% followed by eggs, meat, and fish (15%), cereals (13.3%), and both fruits and vegetables of 10% each. Within the food group, pulses had the highest inflation rates, while edible oils saw the lowest.
Annual Inflation rate of major food items: Milk: About 20% in 2009–2010 and 2010–2011; approximately 10% in 2011–2012 and 2014–2015. Fruits and Vegetables: 11.5% in 2007–2008, 16.4% in 2010–2011, and 23.1% in 2013–2014. Pulses: 31.6% in 2006–2007, 22.4% in 2009–2010, and 19.6% in 2012–2013. Eggs, Meat, and Fish: Consistently experienced double-digit inflation rates from 2009–2010 through 2013–2014.
Factors causing inflation Cost push factors Fuel inflation Nearly 80% of total requirement of petroleum is imported by India, thus the domestic economy is very sensitive to global crude oil price fluctuations. The agricultural sector, in particular, is directly influenced by sustained high oil prices and a weakening rupee, due to the critical role energy plays in the cultivation process. Energy costs influence several components of agriculture such as the cost of fertilizers, irrigation, and powering farm tools. In Addition, transportation costs for moving agricultural produce also depend heavily on fuel prices. Thus, increased cost of cultivation causes by fuel inflation causes food inflation.
The deregulation of petrol and diesel prices in recent years has led to their rates being determined by market forces, adding further volatility. Since 2005, there has been a moderate positive correlation between food and fuel inflation, except during the period from November 2010 to July 2013, when this relationship weakened.
International prices India's agricultural sector expanded in the global market with the contribution of agricultural trade towards the agricultural GDP increasing from 5.2% in 1990–1991 to 19% in 2013–2014.
Food production in 2006-2007 and 2007-2008 observed a 5% growth during these periods. The growth rate was double the growth rate of domestic demand for food. However, the majority of the excess food output never entered the domestic supply, since, due to rising global prices, exports brought more profit in the domestic market. The share of exports in domestic production of food increased from 6.2% during 2003–04 to 2005–06 to more than 10% during 2006–07 to 2008–09. This resulted in some of the increase in global prices to the domestic market, and domestic prices experienced an increase despite a significant increase in domestic food production. Therefore, the main cause of food inflation in 2008 was due to increase in International prices.
Agricultural wages
Rural wages in India, which generally moved in line with overall inflation in 2007, began increasing post-2007. Within the rural sector, agricultural wages observed a sharper increase compared to non-agricultural wages, particularly up to mid-2011. According to the Economic Survey in 2012–2013, rural wages increased by an average of 7.5 percent. The increase in agricultural labour wages has been partly attributed to the tightening of the rural labour market following the implementation of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). While rising wages contributed to higher agricultural production costs, they also played a role in reducing poverty and influencing changes in consumption patterns. Higher incomes have led to increased demand for protein-rich foods such as eggs, meat, fish, vegetables, and fruits. However, a relatively weak supply response to this demand has contributed to sustained food inflation in recent years.
Minimum support prices Minimum Support Prices (MSPs) are government-set prices given to agricultural commodities that are procured from farmers to ensure them a minimum income, regardless of market fluctuations. While MSPs are intended to protect farmers and encourage agricultural production, several studies have found that rising MSPs have significantly contributed to food inflation in India.
Research has found that MSPs are set above market-clearing prices to be effective for procurement. However, this leads to inflationary pressures by pushing up food prices. Higher MSPs, especially for cereals like rice and wheat, directly increase market prices by establishing a price floor. They can also fluctuate agricultural incentives by encouraging more production of MSP-backed crops, such as cereals, at the cost of other crops like pulses and oilseeds, which are often in short supply. This imbalance between supply and demand contributes further to inflation.
Domestic import policies India lacks a robust private sector mechanism for the timely import of primary food products. There are no dedicated private import houses specializing in such imports, and strict regulatory controls, combined with delays in policy announcements, often hinder private entities from responding quickly to emerging shortages in domestic markets.
Case study example During first quarter of 2009, the global prices of sugar was around $290 per tonne. When global markets realized that India would face a sugar shortage, sugar prices rose to $470 per tonne by the third quarter of 2009. By the end of the year, prices had nearly doubled. The situation became worse due to weak coordination between the central and state governments, which delayed efforts to import sugar quickly and ease the shortage.
Demand side factors Increase in demand Between the periods of 1993-1994 and 2011–2012, studies revealed that the Household Consumer Expenditure data showed that the Indian households spent less share of their total consumer expenses on food but there were significant shifts in consumer patterns. Spending on cereals and staple foods decreased while spending on primary products such as milk, eggs, meat, fish, fruits and vegetables increased. This shows a growing preference towards protein and vitamin-rich food items caused due to an increase in income and changing dietary and lifestyle preferences caused due to urbanisation.