Food Inflation in India and Role of Middlemen: The Case of Speculative Buffering and Government Intervention

Abstract

In India, the major driver of recent food inflation has been vegetables, pulses and oilseeds for which there is no public procurement. This paper aims to model the behaviour of big retailers or middlemen who hoard such perishable commodities and add to food inflation by creating artificial shortages due to speculative hoarding. The paper shows the adverse impact of speculative buffering on average price. Lastly the paper argues that import of food items and execution of open market sale by the government will help to reduce inflation not only by bridging the supply gap, but also by reducing speculative buffering.

Keywords: Food inflation, Buffering, Open-Market Sale.