Demonetisation: Food Prices May See Upward Trajectory Instead

November 8, the historic day, when Prime Minister Narendra Modi and his team pronounced upon the ‘logic’ that the only way to curb black money, growing menace of counterfeit currency notes, and most importantly terrorism is through effecting a blanket ban on Rs 500 and Rs 1,000 notes; another expectation started simultaneously seeping inside some bright minds i.e. food prices will see a sudden downward spiral in the days to arrive.

Inflation may rise instead

Inflation may rise instead

This rationale, along with the other that Reserve Bank of India (RBI) will share its dividends arising out of its reducing liabilities post-eradication of unaccounted cash in high denomination, is ruling the roost on social media handles of the ruling government’s propaganda generals.

Conversely, sadly enough, the story is very different on the ground.

To put it straight, the food prices are most likely see an upward shift instead, particularly the non-grain segment.

Post demonetisation the number of laborers from Uttar Pradesh, Bihar, Bengal and Odisha are returning to their native places from farms of Punjab, Haryana and western Uttar Pradesh. Labour-scarcity and outmigration have hit the farmlands and agricultural economy in these regions.

Non-grain segment including vegetables, fruit, fish farming, dairying and poultry rearing sectors will be hit the hardest, as already mentioned before since these are highly labor-intensive unlike grains, whose harvesting can be mechanized. Here price of produce is calculated in the mandis on the basis of its packaging and freshness.

However, in the times, when finding cash is an uphill task how can a producer pay for the specialized labor and harvesting machines? A male laborer commanded around Rs 400 per day in remuneration before demonetization.

In value terms, vegetables, fruit, fish, milk and its by-products like cheese and paneer constitute about 65 percent of farming.

Even before demonetization, a substantial share of this valuable produce used to rot before arriving in the market.

So a drop in supply and rise in non-grain food prices are highly imminent.

Ashish Pandey

I am a business journalist who is currently employed at Zee Business. My areas of interest include business and foreign policy. You can reach me on Twitter at @ashuvirgo1984 or @eFundsPlus.

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