Drop hurts farmers

LATUR, India – A nearly 60 per cent drop in prices of a popular type of lentil is hurting Indian farmer Sanjay Somwanshi, but it is doing wonders for the country’s inflation — and piling pressure on a stubborn central bank to cut interest rates more aggressively.

Standing next to sacks of “pigeon peas” in Latur, an agricultural hub about eight hours from Mumbai by train, Mr Somwanshi cuts a narrow slit in one and scoops out a handful of the red-coloured lentils.

He harvested them in February but delayed selling them because prices were too low.

“For the last six months I have been waiting for prices to move up, but they have in fact gone down further,” he said.

“I can’t wait more as I need money for fertilisers.”

Falling prices for pigeon pea lentils have contributed to a slump for food that dropped annual consumer price inflation to 1.54 per cent in June, the lowest since a new index was adopted in 2012.

There’s been a reversal in food prices; in June, they dropped 2.1 per cent from a year earlier, while in July 2016 they shot up by 8.35 per cent, a two-year peak.

The change in food prices has prompted calls for the Reserve Bank of India to cut its main policy rate INREPO=ECI beyond the 25 basis points markets have priced in for Wednesday’s policy meeting.

There might be tension with a government urging rate cuts to boost an economy that grew 6.1 per cent in the January-March quarter, the slowest in more than two years.

Soumya Kanti Ghosh, State Bank of India chief economist, said the way “typically volatile” food inflation is expected to stay low “should give the RBI comfort to cut rates more than 25 basis points beyond August”.

Given a benign inflation outlook, “deeper rate cuts will be a just and correct assessment of the current situation,” he said.

For years, India suffered double-digit increases in food prices, leaving monetary policy dependent on the vagaries of weather.

Proponents of further rate cuts believe India is in the midst of a sustained easing of food prices as the government has tamped them by keeping a lid on the minimum prices farmers can charge for their produce.

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