Price volatility trends and price transmission for major staples in India

Abstract

India is one of the largest producers as well as exporters of some major food commodities, and is often criticized for its protectionist measures to curb transmission of price shocks from international markets. This paper examines if such policies are necessary to protect domestic consumers from price fluctuations and what are their implications on international prices. To understand this, in this paper we have examined the patterns, trends and volatility in domestic and international prices of rice and wheat, and found that although both the international and domestic prices are volatile, the degree of volatility is higher in the international prices. The volatility in domestic prices is mainly due to internal production shocks and is not influenced much by the international prices. This disconnect is attributed to domestic policy measures, such as market support to farmers and public stockholding of food grains for public distribution and price stabilization.