Arab Times

Rising food prices to hit rural India in 2016

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MUMBAI, Nov 10, (RTRS): India’s villages face a sharp spike in food prices in 2016, as a second year of drought drives up the cost of ingredient­s such as sugar and milk, and poor transport infrastruc­ture stops falling global prices from reaching rural areas.

India’s first back-to-back drought in three decades also complicate­s government spending calculatio­ns as Prime Minister Narendra Modi tries to prune a subsidy regime that has long propped up the rural economy, and he can ill afford to alienate rural voters after a bruising weekend electoral defeat in the northeaste­rn sate of Bihar.

It is bad news for the central bank, too, which faces a conundrum achieving its 4 percent inflation target for the medium term as levels diverge in town and country, and infrastruc­ture developmen­t would take years to fix it.

India’s overall retail inflation eased to 4.41 percent in September, helped by falling commodity prices, but rural inflation was at 5.05 percent, mostly due to food prices. That, some analysts argue, could worsen, despite the dampening effect of lower wages and sluggish growth in the agricultur­al sector.

“The impact of this year’s drought will cut supplies of sugar, milk and vegetables, which the market hasn’t factored in yet fully,” said Harish Galipelli, head of commoditie­s and currencies at Inditrade Derivative­s and Commoditie­s.

“The first half (of next year) will be more painful than the second half.”

While urban dwellers have seen some cheaper imported food products, benefiting from global deflation, that has not filtered through to rural areas, given poor roads, rail and a lack of storage facilities for perishable goods.

Prices of vegetables like onions, tomatoes and potatoes have already been rising, with some staples up as much as 20 percent in a month. Palm oil prices have also climbed in the last two months, while milk prices have risen by 10 percent.

India will release monthly retail inflation data for October on Nov 12. There is little sign of relief. Indian sugar futures are up by a quarter since a late July low, and producers say lower output because of the drought will push them up further in 2016.

Edible oil prices in India, which meets nearly 70 percent of demand through imports, are also likely to rise, given scant rainfall in palm oil-producing countries.

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