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

Abhijit Sen Gupta and Rudrani Bhattacharya

MPRA Paper from University Library of Munich, Germany

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 paper 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.

Keywords: Food Inflation; Engel Curves; QUAIDS Model; India (search for similar items in EconPapers)
JEL-codes: E31 E37 Q11 (search for similar items in EconPapers)
Date: 2016, Revised 2017
New Economics Papers: this item is included in nep-agr and nep-mac
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Citations: View citations in EconPapers (2)

Published in South Asian Journal of Macroeconomics and Public Finance 1.6(2017): pp. 59-81

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Journal Article: What Role Did Rising Demand Play in Driving Food Prices Up? (2017)
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