India to Offload 25% of Rice Stocks as Monsoon Threatens Prices

India will release about a quarter of its rice stockpiles into the open market and allow farmers to freely supply fruits and vegetables to rein in prices as a weak monsoon looms over crop output.

The administration will sell 5 million tons of rice from central reserves at subsidized rates as soon as possible, Food Minister Ram Vilas Paswan said in a briefing in New Delhi today. The federal government will also help states to import pulses and cooking oil if needed and minimum export prices for potatoes will be fixed to discourage outward shipments, Finance Minister Arun Jaitley said separately.

“In light of the forecast of a below-normal monsoon, some hoarding seems to have started,” Jaitley said in New Delhi today. “We will ask states to crackdown on hoarders firmly. The steps are being taken in anticipation of further price rise.”

Wholesale inflation accelerated to the fastest pace in five months in May and consumer prices rose 8.28 percent, eroding purchasing power in a nation where about 70 percent of the population lives on less than $2 a day. More than half of India’s farmlands get water from the June-September rainfall, which has been 49 percent below normal so far.

“As a first step, this looks very sensible,” Shubhada Rao, an economist at Yes Bank Ltd. in Mumbai, said by phone. “The government taking steps to manage all of this will have a much more calming impact on inflation.”

Inflation Risks

Food Corp. of India, the nation’s procuring agency, has been instructed not to retain grains for more than 18 months, Paswan announced, and Jaitley said farmers will be permitted to sell fruits and vegetables anywhere they wish rather than only in state-controlled markets. The government today imposed a minimum export price of $300 per ton for onions.

Food costs have boosted the inflation rate in the last couple of months and “the hope is that with appropriate food management these prices will come down,” Reserve Bank of India Governor Raghuram Rajan said in Mumbai today. He held the benchmark repurchase rate at 8 percent on June 3 after raising it three times since September to quell price pressures.

A 10 percent drop in rainfall may add more than a percentage point to the consumer-price index, and a “full blown drought” risks shaving as much as half a percentage point off economic growth, according to HSBC Holdings Plc. The monsoon will be 7 percent below normal this year, India’s weather department said on June 9.

The government has amassed about 21 million tons of rice and 42 million tons of wheat, more than twice the recommended buffer stock, Agriculture Minister Radha Mohan Singh said June 9. Other contingency measures under consideration include a diesel subsidy to allow farmers to run pumps to irrigate standing crops, and more government funds to help buy seeds.

Before it's here, it's on the Bloomberg Terminal.