Budget 2025 Expectations: Will FM Sitharaman introduce steps to rein in food inflation – Budget 2025 News

With Finance Minister Nirmala Sitharaman all set to present the Union Budget 2025 in Lok Sabha on February 1, one of the key issues that need to be addressed include taming inflation, or to say, food inflation in particular. Despite the Reserve Bank of India (RBI) keeping policy rates unchanged at 6.5 per cent since February 2023, inflation has continued to be a key concern with temporary reliefs intermittently. 

Retail inflation had surged to its highest level in over a year of 6.2 per cent in October primarily due to inflation of vegetables, fruits and oils and fats. Food inflation print had spiked to a 15-month high of 10.9 per cent, lifting retail inflation beyond the RBI’s target of 4 per cent and even its tolerance band of 2-6 per cent. While the December CPI inflation eased to 5.22 per cent, which is within the RBI’s target range, it remained above earlier averages for the year.

Retail food inflation eased for the second consecutive month at 8.34 per cent in December compared to 10.87 per cent in October as prices of vegetables declined over the last few weeks with winter harvest arriving in the market. The consumer food price index (CFPI) declined by 1.47 per cent in December compared to November.

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Gaura Sengupta, Chief Economist, IDFC FIRST Bank, said, “The moderation in inflation was led by food inflation, followed by core inflation. Food and beverages inflation continues to moderate, led by winter season disinflation in vegetable prices. Meanwhile price pressures also eased in other key food items such as pulses and cereal. Edible oil prices continue to rise due to pass through of import duty hike.” She further added that the preliminary estimate for January CPI is tracking at 4.5 per cent after building-in sharper decline in food prices. For the full year FY25, IDFC FIRST Bank said, headline inflation is averaging at 4.8 per cent in line with RBI. Even more encouraging is the trajectory for FY26 which is averaging below 4 per cent, assuming normal monsoon.

Bank of Baroda also said that with December CPI showing some softening led by food inflation, CPI is likely to head lower in the coming months. Madan Sabnavis, Chief Economist, Bank of Baroda, said, “Headline CPI got the desired comfort from a moderation in food inflation especially vegetable inflation. The trajectory of vegetable inflation is continuing its downtrend in Jan’25 as well (first 12 days). If the same pace continues, CPI is likely to head lower in the coming months. We expect it to be in the range of 4.2-4.5 per cent in Q4. The only strain emanates from a depreciating INR which might increase the risk of imported inflation. Global commodity prices are largely range bound however, with ongoing US sanctions against Russia some upheaval in energy prices might be witnessed. This might increase the intermediate input costs.” He further added that the upcoming Budget holds the key here. “Policies may be expected to improve the food supply chain so that the impact of adverse climate related shocks on inflation is mitigated to some extent,” Madan Sabnavis added.

Furthermore, Deloitte maintained that inflation has remained a crucial challenge for the economy for an extended period, making it a critical consideration for the upcoming budget. The Economic Survey 2024 recommended that India’s inflation targeting framework exclude food prices, as food inflation is primarily supply-driven rather than demand-driven. It suggested that the government should address food inflation through supply-side measures rather than relying on the RBI to manage it with demand-side tools.

Dr Rumki Majumdar, Economist, Deloitte, said, “Controlling inflation will be a priority. Long-term initiatives, such as value chain development projects, could be introduced to address the sudden surge in food prices and reduce post-harvest losses. These measures would focus on improving the supply side of the food market.” 

Per Deloitte report, the government could initiate policies that: a) develop a network of cold storage facilities and warehouses at the district and village levels to minimise post-harvest losses and ensure a steady food supply throughout the year; b) promote digital marketplaces that expand platforms such as eNAM (National Agricultural Market) to provide farmers direct access to buyers, reducing dependency on intermediaries; and c) ensure that food distribution programmes such as PDS (Public Distribution System) work efficiently to cushion the poorest sections from food inflation.

Deloitte also anticipated a focus on long-term solutions aimed at strengthening the agricultural value chain, incentivising production and addressing structural supply-side issues that add to the delivery cost.

Suman Chowdhury, Executive Director & Chief Economist, Acuité Ratings & Research, said, “The upcoming Budget will likely honour its commitment by substantially increasing agricultural R&D allocations, targeting an uplift from under 0.5 per cent to at least 1 per cent of agricultural GDP. Additionally, fertilizer reforms are anticipated as the government focuses on enhancing domestic production, particularly of nano-liquid urea, to stabilize prices and reduce import dependency.”

“The flagship crop insurance scheme, Pradhan Mantri Fasal Bima Yojana, which saw unchanged allocation last year, might see a higher budget,” Suman Chowdhury added. 

The upcoming Budget can also promote technological innovations and solutions (such as blockchain and AI) to digitise these supply chains, track inventory and predict weather-based adversaries, thereby reducing wastage and improving forecasting. Suman Chowdhury said, “Budget 2025 will likely expand schemes such as “AgriStack”, which include digitalization across all sectors, along with its flagship scheme KCC. This would also streamline processes and eliminate existing trade barriers to ensure fair pricing for farmers. The budget is likely to focus on agriculture infrastructure, with an emphasis on higher yields, agriculture cluster development, cold storage, warehousing, and supply chain improvements to reduce post-harvest losses and enhance market access, alongside measures for water management, climate change mitigation, and investments in technologies like solar pumps, drones, and precision farming to drive efficiency and innovation.”

Earlier in July 2024, Nirmala Sitharaman, in her Budget presentation, had allocated Rs 10,000 crore to set up a ‘price stabilization fund’ to keep food inflation under check. “The provision (for the price stabilization fund) is for maintaining buffer stock of pulses, onions and potatoes and making sufficient availability of said commodities in the market so as to cool down the prices as and when required,” a footnote to the Ministry’s expenditure budget, had stated. 

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