Food Inflation Quickens, Adding Pressure on Government Before India Budget

India’s food inflation accelerated for the first time in three weeks, adding pressure on the government to unveil steps in next week’s budget to ease prices.

An index measuring wholesale prices of agricultural products including lentils, rice and vegetables rose 11.49 percent in the week ended Feb. 12 from a year earlier, the commerce ministry said in a statement in New Delhi today. It gained 11.05 percent the previous week.

Finance Minister Pranab Mukherjee may boost spending on agriculture and irrigation in the Feb. 28 budget to spur production and curb prices in the world’s second-most populous country. Rising food costs have sparked protests and prompted the central bank to raise interest rates the most in Asia.

“The government could use the budget to boost investment in agriculture, improve the supply chain and allow foreign retailers into the food sector,” Abheek Barua, chief economist in New Delhi at HDFC Bank Ltd., said before the report.

The Reserve Bank of India has increased its benchmark repurchase rate seven times in the past year to 6.5 percent.

Goldman Sachs Group Inc. said this month that India’s 399 billion-rupee ($9 billion) plan to create jobs for the rural poor is pushing up food costs by strengthening consumer demand in the countryside.

The wholesale-price index for food articles averaged approximately 17.2 percent in the past year as spending under the National Rural Employment Guarantee Act of 2005 surged almost fourfold. The program provides 100 days of work in a year to 41 million families in India, according to government data.

Milk, eggs, fish and meat were the main contributors to food inflation in recent years as rising incomes prompted consumers to buy more protein-based products, Goldman Sachs said.

Prime Minister Manmohan Singh’s office in a Jan. 13 statement blamed the late arrival of rains for disrupting supplies of fruits and vegetables, and said higher prices of milk, eggs, meat and fish are “the effect of several inclusiveness program which put greater income in the hands of the relatively poor whose food consumption increases.”

The statement said the “only lasting solution” to curbing food prices in India is to increase productivity.

Thousands of workers from across India marched toward the country’s parliament in New Delhi yesterday protesting rising food costs, low wages and job insecurity.

To contact the reporter on this story: Tushar Dhara in New Delhi at tdhara1@bloomberg.net.

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net.

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