UPSC Prelims 2011 Q4: Indian Economy – Inflation & Price Indices
India has experienced persistent and high food inflation in the recent past. What could be the
reasons?
1. Due to a gradual switchover to the cultivation of commercial crops, the area under the
cultivation of food grains has steadily decreased in the last five years by about 30%.
2. As a consequence of increasing incomes, the consumption patterns of the people have
undergone a significant change.
3. The food supply chain has structural constraints.
Which of the statements given above are correct?
- (a) 1 and 2 only
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Answer: (b) 2 and 3 only
Explanation
Why India saw persistent, high food inflation
| Statement | Verdict | Reason |
|---|---|---|
| 1. Area under food grains has fallen by about 30% in the last five years due to a switch to commercial crops | Incorrect | Food grain area did not fall by anything close to 30%; it stayed broadly stable |
| 2. Rising incomes changed consumption patterns | Correct | Demand shifted towards protein-rich items (milk, eggs, pulses), whose supply did not keep pace |
| 3. The food supply chain has structural constraints | Correct | Poor storage, cold chains, transport and market linkages push up prices |
What actually drove food inflation (2010-11):
| Driver | Effect |
|---|---|
| Demand-side | Higher incomes → more demand for pulses, milk, vegetables |
| Supply-side | Storage and logistics gaps, erratic monsoon years |
| Structural | Weak Agricultural Produce Market Committee linkages, middlemen margins |
Answer: (b) 2 and 3 only.
Why each option is right or wrong
- (a) Incorrect. Statement 1's 30% fall in food grain area is not true, and statement 3 is left out.
- (b) CORRECT. Changing consumption patterns and supply chain constraints explain the food inflation.
- (c) Incorrect. Statement 1 is false, and statement 2 is left out.
- (d) Incorrect. Statement 1's claim of a 30% decline in food grain area is exaggerated and incorrect.
Key point
Food inflation drivers: rising income-led demand (pulses, milk, vegetables) and structural supply-chain constraints — not a 30% fall in food grain area, which did not happen.
Remember
Food inflation: demand shift + supply chain gaps, not a land-area collapse.
Common mistakes
- Accepting the precise '30%' figure in statement 1 without questioning it.
- Thinking food inflation is purely a supply story; demand-side income growth matters too.
- Underrating supply chain/storage problems as a structural cause.
Exam tip
A statement with an oddly specific number (like '30% in five years') is often planted to be wrong. Question it first.
Sources
- Economic Survey 2010-11 — Chapter on Prices and Monetary Management
- Reserve Bank of India — Macroeconomic and Monetary Developments, food inflation analysis