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RBI Monetary Policy Committee (MPC) member Ashima Goyal has said that the problem of high food inflation will be ‘less severe’ in India going ahead, as modern supply chains with diversified sources can help quickly address sudden spikes in prices of specific food items. Stressing that the share of food in the household budget is high in India, she said policy needs to focus on increasing agricultural productivity, since stable agricultural prices are important for non-inflationary growth. 

Goyal further pointed out that one does not hear of tomato or onion prices spiking in advanced economies. She said ‘we naturally have diverse geographic regions, better integrated markets sourcing from different regions can help mitigate climate change induced food price spikes’. Moreover, as the weight of food in consumption falls and food consumption itself becomes more diversified, the impact and size of future food price shocks falls. She said that under flexible inflation targeting, expectations get better anchored.

Besides, she said India unfortunately opted for a distorting system of subsidies to farmers as well as to consumers and given India's huge population this was very expensive and reduced the space for government investment in agriculture. She said it also kept inflation high as procurement prices rose each year. She added that agricultural productivity is finally rising supported by a policy reset, along with the availability of new technologies even though further policy adjustment is required.