Union Budget 2025: Will Nirmala Sitharaman Tackle Food Inflation Head-On?

Finance Minister Nirmala Sitharaman will present the Union Budget 2025 in the Lok Sabha on Feb 1st, and going by the flaccid promises and guidelines so far, there is much expectation around measures that will address the current inflation challenge; food inflation has emerged as an especially important concern. Since February 2023, RBI has maintained its policy rates at 6.5%. Nevertheless, inflation remains an issue for which policymakers are keenly waiting for leeway, mainly through still soaring food prices.

Retail inflation reached a one-year high of 6.2% in October 2024, primarily due to soaring costs of vegetables, fruits, and edible oils. Food inflation alone spiked to a 15-month high of 10.9%, pushing retail inflation beyond the RBI’s target range of 2-6%. Although inflation saw some relief in December 2024, with the consumer price index (CPI) easing to 5.22%, it remained above earlier yearly averages. Food inflation, which had peaked at 10.87% in October, eased to 8.34% in December, as the winter harvest provided much-needed supply-side relief.

Economists have been optimistic about further falls in inflation in the coming months. Gaura Sengupta, Chief Economist at IDFC FIRST Bank, said, "The moderation in inflation has been largely driven by food items such as vegetables, pulses, and cereals". She estimated that the January 2025 CPI could dip further to 4.5%, with full-year inflation likely averaging 4.8%, aligning with RBI forecasts. Sengupta also projected a more stable inflation trajectory for FY26, with rates expected to fall below 4%, provided monsoon conditions remain normal.

Madan Sabnavis, Chief Economist at Bank of Baroda, highlighted that December’s CPI decrease was significantly driven by a reduction in food inflation, particularly vegetable prices. He said that vegetable inflation remains in downtrend early January 2025 and might contribute to bringing CPI inflation to the 4.2-4.5 percent level by the last quarter of FY25. However, Sabnavis warned that a depreciating rupee might increase the risk of imported inflation; an escalation in the global geopolitical tensions could cause potential shocks in energy prices, thereby increasing the intermediate input prices for industries. He further stated that the Budget to be presented would be a critical one in this regard, especially in terms of policies to be introduced to improve food supply chains to cushion climate-related shocks.

The Economic Survey 2024 also underlined the need for supply-side measures to contain food inflation and recommended that food prices should not be included in India's inflation-targeting framework since they are mainly supply-driven. Economists at Deloitte recommended long-term strategies such as developing agricultural value chains, enhancing cold storage infrastructure, and promoting digital marketplaces like the National Agricultural Market (eNAM) to connect farmers directly with buyers. These initiatives could reduce post-harvest losses, stabilize food supplies, and minimize reliance on intermediaries. Deloitte also recommended making food distribution programs such as PDS more efficient to shield the vulnerable from the impact of food inflation.

Chief Economist at Acuité Ratings & Research Suman Chowdhury felt that the Budget needed more investment in research and development for agriculture. "The Budget must target increasing R&D funding from less than 0.5% of agricultural GDP to at least 1%", he said. Chowdhury also expects reforms in the production of fertilizers, especially nano-liquid urea, to reduce dependence on imports and stabilize prices. He said that flagship schemes such as the Pradhan Mantri Fasal Bima Yojana, which did not see an increase in allocation last year, could see a hike this year.

Technological innovation is also a focus area in the Budget. One could think about investment in blockchain and AI for digitization of supply chains, tracking of inventory, and weather-related adversities. Programs like AgriStack, which are aimed at complete digitalization of agriculture, are expected to help cut trade barriers, smooth processes, and ensure fair pricing for farmers. There is going to be renewed focus on agricultural infrastructure, which includes cold storage, warehousing, and supply chain improvements, in order to reduce post-harvest losses and improve market access.

In her previous Budget, Nirmala Sitharaman had allocated Rs 10,000 crore to set up a price stabilization fund to check food inflation. This fund was supposed to sustain buffer stocks of critical commodities like pulses, onions, and potatoes, so that their availability in the market stabilizes prices when required. With inflation continuing to impact the economy, the upcoming Budget is expected to reinforce such measures while introducing new strategies to enhance agricultural resilience and address structural challenges.

As the Union Budget 2025 is being awaited, attention is still centered on whether it will bring about tangible solutions for curbing food inflation, balance supply-side dynamics, and lay the foundation for sustainable agricultural growth.