India may increase the size of a fund used to stabilise food prices by as much as 80% after an unexpected acceleration in inflation to a 17-month high, according to a government official with direct knowledge of the matter.
The price stabilisation fund will probably be increased to Rs9bn ($131mn) from Rs5bn, said the official who asked not to be identified before a final decision is taken. The fund, handled by the food ministry, is spent on buying commodities such as onions and pulses for sale in the local market to boost supplies during shortages, the official said.
Prime Minister Narendra Modi is taking steps to control prices of essential food commodities after first back-to-back shortfall in monsoon rainfall in three decades trimmed production of rice, oilseeds, sugar cane and cotton. The fund, which was set up in March last year, will be used to advance interest-free loans to state governments and agencies to meet their working capital and other expenses on procurement and distribution of staples. State governments or their agencies will procure commodities directly from farmers or their organisations and sold to the consumers at reasonable prices, the official said. Food and Consumer Affairs Ministry spokesman NC Joshi and Finance Ministry spokesman DS Malik declined to comment.
India’s retail inflation unexpectedly accelerated to the fastest pace since August 2014, adding pressure on Modi government to contain spending when it presents its annual budget on February 29. The consumer food price index rose 6.85% in January from a year earlier after a 6.4% gain in December, according to the Statistics Ministry. The increase was led by a 43% surge in pulses, it said.
India is forecast to buy record quantities of palm and soybean oils to meet a domestic shortfall and it’s also buying corn overseas to meet demand from feed and starch makers. The country’s rice production may drop to 103.6mn tonnes in 2015-16 from 105.5mn tonnes a year earlier, while the corn harvest will drop 13% to 21mn tonnes and soybean production is seen declining 12% to 9.1mn tonnes, the Agriculture Ministry said this week.