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How does Supply Chain Distortion affect Food Inflation in India?

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  • Bhattacharya, Rudrani

    () (National Institute of Public Finance and Policy)

Abstract

During the recent episode of persistently high food inflation in India, the role of rent seeking activities of food suppliers emerged as the centre of debate in the country. The rent seeking activities of agents in both wholesale and retail marketing of food, catered by the lack of a competitive food market and required infrastructure, often causes large positive shocks to mark ups. This paper estimates the contribution of these mark-up shocks at both wholesale and retail level, in food inflation, an issue unexplored in the literature till date. The study finds moderate but significant pass through of mark-up shocks in food inflation after controlling for other factors. The duration of the transmission effect depends on the origin of the shock in wholesale market, while the effect seems to last for five months in retail food inflation. In the backdrop of advocated competitive national market for food commodities to promote greater competition and stabilise large shocks to mark ups, this paper contributes towards understanding the extent to which stabilisation of mark-up shocks can lower wholesale and retail food inflation in the country.

Suggested Citation

  • Bhattacharya, Rudrani, 2016. "How does Supply Chain Distortion affect Food Inflation in India?," Working Papers 16/173, National Institute of Public Finance and Policy.
  • Handle: RePEc:npf:wpaper:16/173
    Note: Working Paper 173, 2016
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    References listed on IDEAS

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    1. Pourroy, Marc & Carton, Benjamin & Coulibaly, Dramane, 2016. "Food prices and inflation targeting in emerging economies," International Economics, Elsevier, vol. 146(C), pages 108-140.
    2. Rahul Anand & Eswar S. Prasad, 2010. "Optimal Price Indices for Targeting Inflation Under Incomplete Markets," NBER Working Papers 16290, National Bureau of Economic Research, Inc.
    3. 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.
    4. Christophe Gouel, 2014. "Food Price Volatility and Domestic Stabilization Policies in Developing Countries," NBER Chapters,in: The Economics of Food Price Volatility, pages 261-306 National Bureau of Economic Research, Inc.
    5. Pratap R Jena & Satadru Sikdar, 2016. "Search for Resources in a High Income State: A Study of State Finances of Sikkim," Working Papers id:10798, eSocialSciences.
    6. Aoki, Kosuke, 2001. "Optimal monetary policy responses to relative-price changes," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 55-80, August.
    7. Bhanumurthy, N.R. & Prasad, Manish & Jain, Richa, 2016. "Public Expenditure, Governance and Human Development: A Case of Madhya Pradesh," Working Papers 16/171, National Institute of Public Finance and Policy.
    8. Subir Gokarn, 2011. "The price of protein," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 4(2), pages 327-335, July.
    9. Sapre, Amey & Sinha, Pramod, 2016. "Some areas of concern about Indian Manufacturing Sector GDP estimation," Working Papers 16/172, National Institute of Public Finance and Policy.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Food inflation ; India ; Mark-up shock ; National market for food commodities ; SVAR;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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