The Return of Food Inflation: Why it’s Different this time

Since the start of this calendar year, annual consumer price index (CPI) inflation has ruled not only above the Reserve Bank of India’s (RBI) target of 4%, but even its upper tolerance level of 6%, for every month from January to May. If we take the 38 months from April 2019 to May 2022 – roughly coinciding with the Narendra Modi-led government’s second term (Modi 2.0) – CPI inflation has exceeded the 4% target in as many as 32 months and even the 6% ceiling in 18 months. This has been seen by many as a failure on the part of the central bank to adhere to its inflation-targeting mandate, enshrined in law since June 2016 ( and

The above “failure” is in contrast to the “success” achieved in the Modi government’s first term (Modi 1.0). During that period, roughly from April 2014 to March 2019, the 6% ceiling was breached only in 6 out of the 60 months. Moreover, CPI inflation was contained within 4% in 23 out of the 60 months. A far cry from the 6 out of 38 in Modi 2.0, with even those six being in the first six months from April to September 2019!

But the story isn’t just about overall retail inflation. During Modi 1.0, year-on-year general CPI inflation averaged 4.49%. It was even lower, at 3.52 per cent, for the consumer food price index (CFPI) inflation, with the latter ruling below the former in as many as 38 out of the 60 months. In other words, while inflation in general was benign, food inflation was even more so. That trend was visible particularly after September 2016, as can be seen from Chart 1.

It’s been quite the opposite in Modi 2.0. Overall CPI inflation has averaged 5.59% during these 38 months, 1.1 percentage points higher than in Modi 1.0. No less striking is CFPI inflation, which has averaged even higher, at 6.21% or almost 2.7 percentage points more than during Modi 1.0. In 18 out of the 38 months, food inflation has exceeded general CPI inflation, while also exhibiting greater volatility, as Chart 2 shows. For both the government and RBI, food inflation has been the bugbear – due to greater political sensitivity and less amenability to control through monetary policy tools such as repo interest rate and cash reserve ratio hikes.

Imported inflation

A major source of the resurgent food inflation has been global prices.

During the Modi 1.0 period, these were low: International agri-commodity prices actually collapsed from around late-2014. The UN Food and Agriculture Organization’s food price index (FPI; base year: 2014-2016=100) averaged 131.9 points in 2011, which was at the height of the previous commodity boom/super cycle. The index fell to 122.8 in 2012, 120.1 in 2013 and 115 in 2014, before plummeting to an average of 93 and 91.9 points in the subsequent two years. The average annual FPI inflation during April 2014 to March 2019 was minus 3.95%, below even the corresponding Indian CFPI rate of 3.52%.

Again, it’s been the other way round in Modi 2.0, where global FPI inflation has averaged 13.42%, higher than the 6.21% retail food inflation in India over the 38 months from April 2019 to May 2022. Simply put, while low international agri-commodity prices helped control domestic food inflation during Modi 1.0 – even translating into depressed crop realizations for farmers – their soaring from around October 2020 has produced the opposite effect. The FPI crashed to a four-year-low of 91.1 points in May 2020 when most countries had severe lockdown restrictions in place. But with the post-Covid demand recovery and easing of lockdowns, the index rose to 135.6 points by January 2022. The Russian invasion of Ukraine on February 24 took it to an all-time-high of 159.7 points in March, from where it has marginally fallen to 157.4 in May.

The transmission of international prices to domestic inflation in India is best illustrated by edible oils. During the Modi 1.0 period, average year-on-year inflation in the global FPI for ‘vegetable oils’ was minus 5.79%, while at 2.89% for the CPI in ‘oils and fats’. But in Modi 2.0, the former has averaged 33.31% and the latter 15.5%. Charts 3(a) and 3(b) plot the month-wise FPI and CPI inflation rates in edible oils for both periods. The correlation coefficient for international and domestic inflation is positive for edible oils: 0.33 in Modi 1.0 and 0.85 in Modi 2.0. Indian consumers benefitted from very low (almost flat) inflation during 2014 to much of 2020, whether in palm, soybean, sunflower, mustard and groundnut oil or vanaspati (hydrogenated vegetable oil). But as global prices of vegetable fats skyrocketed – for reasons we shall detail in the next section – consumers experienced sudden and sharp inflation in this commodity (

There’s no such correlation, though, when it comes to cereals. Average annual inflation was low both for CPI in ‘cereals and products’ and FPI in ‘cereals’ – at 3.38% and minus 3.32%, respectively – during the Modi 1.0 period. In Modi 2.0, India’s CPI cereal inflation averaged even lower, at 2.6%. This was despite the average year-on-year global cereal FPI inflation shooting up to 12.81% during this 38-month period. Unlike with edible oils, the correlation coefficient for international and domestic inflation has been weak and negative in cereals – at minus 0.017 during Modi 1.0 and minus 0.40 during Modi 2.0. The reason for it has to do with government’s minimum support price (MSP)-based procurement and stocking of wheat and rice for channeling through the public distribution system (PDS). Maintaining more than adequate stocks in the Central pool, both for the PDS and open market operations, has effectively insulated Indian cereal prices from the vicissitudes of the world market. The PDS prevented inflation from being imported into India during Modi 2.0, just as MSP procurement ensured no cereal deflation during Modi 1.0.

We have found similar results for sugar and dairy. As the table below shows, average CPI inflation has fallen for both during Modi 2.0 compared to that in Modi 1.0, even while rising significantly for the global sugar and dairy FPIs.

Sugar and Milk inflation: Domestic vs Global
(% average year-on-year) 

Low international sugar prices weighed heavily on realizations for domestic mills and, in turn, their ability to pay cane growers during a greater part of the Modi 1.0 period. But in Modi 2.0, high global prices helped Indian mills to export record quantities. At the same time, production being in excess of
domestic consumption requirements – which was the case for rice and wheat as well – ensured little CPI inflation in sugar. Production self-sufficiency, coupled with established systems of procurement and marketing by cooperatives and organized private dairies, has resulted in no imported inflation for milk and milk products either. The correlation coefficient between international and domestic prices has been negative and weak for sugar, dairy and cereals, while positive and strong in edible oils during Modi 2.0. Inflation from import dependence and the resultant transmission of international prices has been a factor for pulses too. Average CPI inflation in pulses was only 4.29% in Modi 1.0. It has more than doubled to 10.31% during Modi 2.0. Pulses imports peaked during 2015-16 to 2017-18, averaging over 6 million tonnes (mt). In the last three years, imports have more than halved to about 2.7 mt, but they are still significant relative to domestic production of 24-25 mt.

Structural versus idiosyncratic inflation

Food inflation isn’t new to India. Average annual inflation in the wholesale price index for ‘food articles’ was 10.21% during the previous UPA regime from 2005-06 to 2013-14. That inflation, though, was structural and demand-led, driven by growth in incomes, including of poor and lower-middle class households. Rising real incomes, as a previous note in this series has shown (, also contributed to significant dietary diversification, with per capita consumption of foods rich in proteins, vitamins and minerals (milk, egg, meat, fruits and vegetables) going up and that of carbohydrates/calories-based foods (cereals and sugar) declining. A byproduct of it was what the former RBI deputy governor Subir Gokarn termed “protein inflation”. In a late-2010 paper (, he wrote how “increasing demand for proteins appears to be an inevitable consequence of rising affluence”, while warning of persistent demand-supply balances that would make pulses, milk, eggs, fish and meat relatively costlier down the line.

The current food inflation, on the other hand, is more idiosyncratic and supply shock-driven, rather than structural. We have already noted that retail inflation in milk and milk products has fallen during the Modi 2.0 period. Annual growth in milk sales by cooperatives, too, has averaged just over 3 per cent from 2014-15 to 2020-21 (National Dairy Development Board annual reports). Low price increase and sales growth in milk – a product with very high income elasticity of demand in India ( – is indicative of no major “structural” drivers and the return of food inflation being attributable mainly to “supply-side” factors.

The last two years and more have witnessed four kinds of supply shocks – from weather, export controls, pandemic and war.

Ukraine, even before the war, had drought in 2020-21 ( that reduced its exports of sunflower oil, corn and wheat to 5.27 mt, 23.86 mt and 16.85 mt, respectively, from the previous year’s levels of 6.69 mt, 28.93 mt and 21.02 mt. Russia also faced dry and hot weather issues, cutting its sunflower oil exports from 3.83 mt in 2019-20 to 3.25 mt in 2020-21 (US Department of Agriculture, Grain and Oilseeds World Markets and Trade reports). Their smaller sunflower harvests started pushing up global vegetable oil prices from around September 2020. This was followed by the Russia government, in December 2020, issuing a series of decrees restricting exports of wheat, corn, sunflower and rape seeds, barley and rye in order to control domestic food inflation (

The pandemic’s impact was felt in Malaysia’s oil palm plantations, which, until April 2020, employed some 337,000 migrant labourers mostly from Indonesia and Bangladesh. Thousands of them flew home, as Malaysia closed its borders and stopped issuing new work permits to prevent the spread of Covid-19. With its plantations operating with about 75,000 fewer workers than needed (, Malaysia’s palm oil output fell to 17.85 mt in 2020-21, from 19.26 mt and 20.80 mt in the preceding two years (USDA). The war was the final straw. Supply disruptions from Ukraine and Russia triggered a wave of food export restrictions by countries concerned about inflation faced by their own populations. The most prominent example was Indonesia. The world’s largest palm oil producer and exporter, during February-March 2022, levied price controls, domestic sale obligations on exporters and finally tariffs on shipments ( For a brief period, between April 28 and May 23, it even slapped an outright ban on exports. Exacerbating these was drought in South America, with the USDA estimating the combined soybean production of Brazil, Argentina and Paraguay in 2021-22 to have fallen by 11.25% over the previous year.

India is probably one of the few countries that did not face any adverse weather events, at least in 2020-21. Bumper crops – both kharif (harvested mainly over October-December) and rabi (April-June) – led to record government purchases of rice (60.17 mt) and wheat (43.34 mt). Huge carryover stocks, in turn, enabled unprecedented quantities (55.06 mt rice and 50.55 mt wheat) to be sold under various welfare schemes in 2021-22 (financial year from April to March). The PDS turned out to be a savior – indeed, the only effective social safety net – during the pandemic, with the poorest states benefiting the most from the substantially stepped-up offtake of free/near-free grains ( What’s interesting is that India in 2021-22 also exported record quantities of both rice (21.21 mt) and wheat (7.24 mt).

However, 2021-22 (the agricultural year from July to June) has been different. Rainfall during the southwest monsoon season (June-September) was normal on the whole. But the precipitation was irregular. Surplus rains in June, prompting brisk kharif sowings by farmers, were followed by a long dry spell from the second week of July till the third week of August. The period thereafter was marked by excess rainfall extending to all the subsequent five months till January. The kharif crop, thus, suffered first from moisture stress during the vegetative growth stage and, then, inundation at harvesting time. It did not stop there. Excess rains in January also affected yields of the rabi mustard that was in late-flowering stage. The culmination of these black swan (climate change?) events was the sudden spike in temperatures from mid-March, which took a toll of the wheat crop just when was in the final grain-filling stage ( If March was bad for wheat, January was similarly so for mustard.


There are three broad takeaways from our analysis of the return of food inflation in India.

The first is the inflation being partly imported. The same factor – international prices – that kept food inflation low during Modi 1.0 has pushed it up in Modi 2.0. At the same time, this imported inflation has been disproportionately felt in edible oils and pulses. It hasn’t been so much in cereals, sugar and milk – commodities where India is self-sufficient and even in a position to export when global prices are high.

The second is the role of domestic supply shocks. These were, by and large, absent in 2020-21. But that wasn’t the case in 2021-22. While the National Statistical Office’s data shows the agriculture sector’s growth rate at 3%, on top of 3.3% in 2020-21, we have reasons to be skeptical. For, 2021-22 was a story
not only of the heat wave in March, but also of unseasonal rains from September to January. Both the kharif and rabi crops were impacted as a result. The double whammy of unseasonal rains and early summer also hit the production of mangoes and lemons, by causing flower drops and not allowing adequate time for fruit formation and growth. Had the intensity of the damage to wheat yields from the heat wave been properly understood and acknowledged, the government would in all probability have declared a bonus over and above the MSP. By not doing that, it left the field open for private millers and traders. They bought bulk of the wheat from farmers, paying slightly more, sensing both crop shortage and opportunities for exports. As the government’s own procurement plunged from 43.34 mt to under 19 mt in the current marketing season, it ended up doing what Indonesia and Russia had earlier done: Ban exports. This wouldn’t have been necessary if official procurement had even touched 25 mt.

The final point is to re-emphasize that there is nothing “structural” about the current inflation. Supply shocks, by their very nature, are temporary. While they may correct sooner than we would imagine, the more enduring problem of Indian agriculture – stalled dietary and cropping diversification, courtesy of weak income and demand growth – will remain and come to the fore.

This note has been authored by Samridhi Agarwal and Harish Damodaran.

Find all previous notes as part of the series here:

Yoga in the City

Group yoga at Lodi Gardens (Photo credit: Mukta Naik)

On a recent weekend visit to Lodi Gardens, I was greeted by the delightful sight of a few dozen people engrossed in a collective yoga practice on the large lawn in front of the Bada Gumbad. Instantly, it reminded me of the group dancing I saw in public squares during trips to southeast Asian cities like Hanoi and Shenzhen. The contexts might have been different, but the sheer joie de vivre of being part of that experience, at that place and time, is exactly the same.

As Indians emerge from the loneliness and isolation of the pandemic, public places in our cities are teeming with people seeking to reconnect, in a noisy, messy, happy celebration of communal life. This reconnection with humanity is the very essence of cities, where ideas and aspirations, skills and opportunities serendipitously collide and coalesce to create new ventures, forge partnerships and add value. And while transactional encounters dominate our use of public space, the urban Indian is increasingly seeking spaces of leisure, introspection and even spirituality, right in the midst of the busy city.

Dancing in China’s public squares (Photo credit: By N509FZ – Own work, CC BY-SA 4.0)

Why then is the practice of yoga, increasingly an intrinsic part of the urban Indian’s wellness and self-care routine, confined to the home, the fitness studio and the occasional private garden? Why does the scene that greeted me in Lodi Gardens that Sunday morning not replicate across the city, country, and in every public space?

Perhaps we can re-imagine urban public spaces as opportunities for a shared and inclusive practice of wellness, where yoga is a catalyst to enable meaningful social interactions and spiritual interchange. To achieve the democratized transformation of public spaces at city and neighbourhood scales to trigger a wellness revolution, we might need, not just the critical elements of land and infrastructure, but also an imagination of activities and processes of interaction.

These are questions for urbanists to ponder, this International Yoga Day, at a time when cities are expected to propel the nation towards its ambitions of inclusive and sustainable economic growth. In addition to smart, inclusive and sustainable, a healthy city is just as vital for our collective future.

Briefing Note: Insurance Regulatory and Development Authority of India


Setting the context

The principal legislation governing the insurance sector in India is the Insurance Act, 1938. This law, amended several times since its passage, lays down the procedures and requirements that insurance companies must comply with while doing insurance (and reinsurance) business in the country. The Indian insurance sector operates under the aegis of the Ministry of Finance. The sector is regulated by the Insurance Regulatory and Development Authority (IRDA), a body incorporated under an Act of Parliament, the Insurance Regulatory and Development Authority Act, 1999. Armed with powers vested under the Acts of 1938 and 1999, IRDA sets forth the regulatory framework for the overall supervision and development of the insurance sector in India.

Typically, the insurance industry is classified into life and non-life categories, and comprises entities such as life insurance companies, general insurance companies, reinsurance companies, and insurance intermediaries such as brokers, third-party administrators, surveyors and loss assessors.



In India, the insurance industry, including its constituent entities, falls under the regulatory purview of IRDA. The Authority is primarily responsible for protecting the interests of policyholders; prescribing codes of conduct for regulated entities; and monitoring and enforcing standards of financial soundness and integrity among those it regulates. Towards fulfilling these responsibilities, the insurance sector regulator is vested with executive powers, including the power to issue, modify, withdraw or suspend registrations of industry entities; levy fees; call for information, inspect, investigate and audit the conduct of regulated entities. It also has an element of judicial powers so as to adjudicate disputes between insurers and intermediaries or insurance intermediaries. Further, IRDA is also mandated to promote and regulate the functioning of professional organizations related to the insurance and reinsurance business. Section 26 (1) of the IRDA Act of 1999 and Section 114A of the Insurance Act of 1938 provide the Authority with the powers to make subordinate legislations or regulations to carry out its statutory purposes, in consultation with the Insurance Advisory Committee (IAC).

Stipulated in the Act of 1999, IAC should consist of not more than twenty-five members (excluding ex-officio members) who represent the interests of commerce, industry, transport, agriculture, consumer fora, surveyors, agents, intermediaries, organizations engaged in safety and loss prevention, research bodies, and employees’ associations in the insurance sector. The draft of every regulation is placed first before the IAC and its comments/recommendations are sought. Consequently, the draft regulation is placed before the Authority for approval.  IRDA has made regulations on various aspects of the business of insurance including the protection of policyholders’ interests, the manner of investment of funds and its periodic reporting, the maintenance of solvency, and clearance of products prior to their introduction in the market.

As per Section 4 of the IRDAI Act, 1999, the Authority shall consist of 10 members – a Chairperson, five Whole-Time Members, and four Part-Time Members, as appointed by the Government of India. Under the Act, the Chairperson shall have the powers of general superintendence and direction in respect of all administrative matters of the Authority. All appointees are to be chosen from disciplines which, in the opinion of the Central Government, will serve useful for the Authority. IRDA has made regulations pertaining to the meetings of the Authority for transaction of business and procedure to be followed.

IRDA has also laid down regulations on the manner in which insurers are expected to handle grievances of policyholders. The first post of recourse for a policyholder is the insurer. Every insurer is required to have a Grievance Redressal Officer (GRO) to whom the complainant will direct the grievance. All insurers are also expected to be part of the Integrated Grievance Management System (IGMS) put in place by the Authority to facilitate online tracking of grievances. If the insurer rejects the grievance or does not respond to the complainant (within stipulated period) or only partially resolves the issue, the complainant can approach the Insurance Ombudsman.[ The Insurance Ombudsman scheme was created by the Government of India for individual policyholders to settle complaints out of courts. At present, there are 17 Insurance Ombudsman across the country. The complainant can approach an Ombudsman based on territorial jurisdiction – either the office location of the insurer/branch against whom the complaint is or based on the location of the complainant. ] The Ombudsman typically acts as a mediator to arrive at a mutual settlement. In cases where no settlement is possible, the Ombudsman has to pass an award within three months. If unsatisfied, the complainant may approach consumer or civil courts.


Sectoral issues and challenges

India’s insurance sector has been growing in recent years. Generally, the development of the sector is assessed using metrics such as insurance penetration, i.e. the percentage of insurance premium to Gross Domestic Product, and insurance density, i.e. the ratio of premium to population (or per capita premium). As per the IRDAI Annual Report 2020-2021, insurance penetration has increased from 3.49 per cent in 2016-2017 to 4.2 per cent in 2020-2021. Similarly, for the same time period, insurance density has increased from 59.7 USD to 78 USD. While both penetration and density of insurance remain low in comparison to global levels, they have grown with respect to their past levels.

Public sector insurers command a large share of the Indian insurance market despite several measures to liberalise the sector. For instance, the market share of the Life Insurance Corporation (LIC) stands at 64.14 per cent of the total premium underwritten in the life insurance segment. This segment itself dominates the insurance sector with a share of close to 75 per cent, and non-life insurance accounting for the remaining 25 per cent. Non-life insurance penetration is astonishingly low in India – only around 1 percent of the population is covered in this segment. Large sections of the Indian population, in rural areas especially, remain generally uninsured – herein lies the insurance gap.

Another long-standing issue with the sector has been that insurers in India lack sufficient capital. The insurance sector was a crucial part of the Central Government’s strategic disinvestment agenda. The LIC is the sole public-sector life insurer in the country whereas there are four public-sector insurers in the non-life insurer segment. The latter, however, have weak financial positions. The planned merger of three non-life (general) insurers was shelved in the year 2020. The Central Government decided to carry-out capital infusion measures to improve their solvency and financial position, enhance internal capacity and risk management capabilities. The LIC IPO and its recent underperformance sends strong signals about market confidence in public sector insurers and their ability to manage money. Given this outcome, the right balance needs to be struck between public sector and private sector in the insurance space.

That insurance policies are prone to mis-selling is now well-documented. When consumers with little understanding of financial products interface with agents and distributors whose remunerative structures incentivise them to ‘push’ these products, the possibility of mis-selling is high. The insurance regulator has made several interventions to resolve such issues. According to the IRDAI Annual Report 2020-21, the number of complaints related to mis-selling has decreased from 41,754 in 2019 to 25,482 in 2021. The sales-agent model in the insurance business has been increasingly challenged with the rise of cross-selling and direct-to-consumer digital sales. An upcoming model in the insurance ecosystem in India is InsurTech. The right mix of technology, innovation, and appropriate levels of regulatory scrutiny offers the much-needed opportunity to shrink the insurance gap in India.