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Measurement of Inflation in India UPSC NOTE

 Consumer Price Index (CPI):

  • The CPI is used to measure inflation in India, reflecting changes in the general price level and cost of living.

  • It comprises 299 items, with vegetables holding a weightage of 6.04%.

Significance of TOP:

  • Tomato, onion, and potato (TOP) collectively have a weightage of 2.2% in the overall CPI basket.

  • Their significance goes beyond numerical representation, influencing food and beverages inflation and the headline CPI.

Impact and Volatility of Vegetable Prices

Recent Price Trends:

  • In FY2023-24, vegetable prices surged by about 15% year-on-year.

  • Prices fluctuated dramatically, with vegetable inflation rising from -0.7% in June to 37.4% in July.

  • Tomatoes, in particular, saw a price increase of 202% in July 2023, contributing significantly to headline inflation.

  • Despite their small weight in the CPI, vegetables contributed about 30% to inflation in early 2024.

  • In July 2023, vegetables' contribution to headline inflation was 31.9%, with TOP contributing 17.2%.

Price Volatility

Volatility Measures:

  • The coefficient of variation (CoV) is used to measure the volatility of inflation.

  • TOP’s CoV was 5.2, higher than the vegetables sub-group (CoV=3.0), food group (CoV=0.6), and headline inflation (CoV=0.3).

  • This indicates greater price volatility for TOP compared to other food items and the overall inflation rate.

Inflation Trends:

  • The inflation rate for TOP has been highly volatile, ranging from -36.6% in September 2021 to 132.0% in December 2019.

Policy Implications and Farmer Impact

  • The volatility and importance of TOP in inflation trends highlight the need for effective policy measures.

  • Suggested solutions include overhauling agricultural value chains, improving cold storage facilities, providing better prices to farmers, and reducing input costs for fertilizers and pesticides.

Challenges Faced by Farmers:

  • The lack of Minimum Support Price (MSP) for these crops leads to price volatility affecting farmers, who are often net buyers of these vegetables.

  • Short-term measures, such as lifting export bans ahead of elections, do not address long-term needs.

Farmers' Demands:

  • Farmers have continuously protested for MSP for onions and other crops, but their demands have been largely ignored by the government.

  • Notable protests, such as the Kisan Long March, have highlighted these ongoing issues.



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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Measurement of Inflation in India UPSC NOTE
Measurement of Inflation in India UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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