At the start of 2011, India found itself the subject of concern among economists when the country’s food prices reached another troubling high. At the same time, the Reserve Bank of India signaled an interest rate rise after having increased the rates six times in 2010 – one of the most aggressive tightenings of any central bank. Calls for further moves were intensified by a report by the International Monetary Fund, saying that rates needed to be higher to curb inflation.

Looking back, India was one of the world’s best-performing economies in 2010 and has, alongside China, been considered the ‘engine of recovery’ for the global economy during the crisis. But rising inflation is becoming an increasing threat to this position and the Wall Street Journal warns that the central bank has to be careful in the coming year, since liquidity within the banking system is tight and further rate increases could exacerbate this problem.

According to numbers from the Ministry of Commerce and Industry, the last five weeks of 2010 showed a continuous rise in food prices which was mainly attributed to higher vegetable prices, particularly onions, after unseasonal rains in some parts of the country damaged crops. The Wall Street Journal reported that the squeeze in supplies – as well as higher demands from consumers and policy failure on behalf of the government – have exacerbated the situation.

In an attempt to control the problem, the Indian government banned exports of onions, which is seen as a politically sensitive staple given its enormous presence in Indian cuisine. Import duty has also been removed and state-run cooperatives selling the vegetable at subsidized prices in local markets have been set up. But still, the price of an onion was predicted to continue its rise – by January up 82% from the year before.

By the start of February, the inflation of the food prices eased to around 13% and by mid-February, the deputy head of the Planning Commission predicted a further ease in the market, claiming that the food inflation would settle itself in a “much more comfortable position” by the end of the fiscal year in March, according to Reuters.

However, the Indian people are beginning to feel the pinch and on February 23, thousands of people gathered in the Indian capital of Delhi to protest against the food prices and unemployment. Carrying red flags, the protesters marched through the streets of central Delhi since early morning and caused massive traffic jams. The rally was set up by trade unions who called nearly 40.000 people to attend a meeting at the Ramlila grounds.

The Indian National Trade Union Congress (Intuc) – which is backed by the governing Congress party – also supported the strike saying it wants to remind the government about its commitments to the poor, according to the BBC.

Previously, the government had shown interest in adopting an Afghani policy that bans lavish wedding celebrations – an extravagant tradition in the region – to tackle the domestic food crisis. As the Indian economy has grown, millions of people have been elevated into what is termed ‘the great Indian middle class’, but as the high inflation rate is hitting India’s poorest hard, the government scramble to come up with policy to promote a sustainable market. India’s Food and Consumer Affairs Minister K. V. Thomas was quoted by Reuter for saying that “We believe we can preserve food grains for the poor and needy of this country by restricting its use at such extravagant and luxurious social functions”.

He continued to explain that nearly 15% of India’s food grains were wasted at these events and to counter these numbers, the government was looking at introducing a bill before parliament to limit the consumption.

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