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What Role Did Rising Demand Play in Driving Food Prices Up?

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  • Rudrani Bhattacharya
  • Abhijit Sen Gupta

Abstract

Average food inflation in India during the period 2006–2013 was one of the highest among emerging market economies and nearly double the inflation witnessed in India during the previous decade. An often-cited hypothesis argues that the surge in food inflation during this period was driven by rising demand for high-value food products due to higher per capita income and diversification of Indian diets. In this article, we test the validity of this hypothesis by estimating the expenditure elasticity and then calculating the aggregate demand using data from household survey conducted by the National Sample Survey Organisation (NSSO). Our results show that in recent years, estimated demand has exceeded supply of all major food products, barring fruits. Moreover, empirical estimates indicate that the demand–supply gap is an important driver of rise in food prices, along with other factors such as minimum support prices, global prices, fiscal deficit and agricultural wages. JEL Classification: E31, E37, Q11

Suggested Citation

  • Rudrani Bhattacharya & Abhijit Sen Gupta, 2017. "What Role Did Rising Demand Play in Driving Food Prices Up?," South Asian Journal of Macroeconomics and Public Finance, , vol. 6(1), pages 59-81, June.
    • Handle: RePEc:sae:smppub:v:6:y:2017:i:1:p:59-81
    DOI: 10.1177/2277978717695155
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    1. Jayatilleke S. Bandara, 2013. "What is Driving India’s Food Inflation? A Survey of Recent Evidence," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 14(1), pages 127-156, March.
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    Cited by:

    1. Asharani Samal & Mallesh Ummalla & Phanindra Goyari, 2022. "The impact of macroeconomic factors on food price inflation: an evidence from India," Future Business Journal, Springer, vol. 8(1), pages 1-14, December.
    2. Rudrani Bhattacharya & Abhijit Sen Gupta, 2018. "Drivers and impact of food inflation in India," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 11(2), pages 146-168, May.

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    More about this item

    Keywords

    Food inflation; Engel curves; QUAIDS model; India;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices

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