IAS Economy Practice Question . 6

In the current global economic environment, global food prices affect India’s domestic prices in a condition when
1. India imports food products
2. India exports food products
3. India does not trade in food products
Choose the correct option:
[A]Only 1
[B]Only 1 & 2
[C]Only 2 & 3
[D]All 1, 2 & 3

Answer: All 1, 2 & 3
This is a meticulously framed multiple choice question. The first two statement s are correct because the question is asking about effect on domestic prices not increasing or decreasing prices. This means that when we export or import food products definitely there would be an effect and that is why the Government does intervention to affect the supply side and demand side of the inflation. In current environment, given India’s growing integration with the world economy, global food prices affect our domestic prices even if there is no trade in food products. Global food price pressures have been quite acute in recent years reflecting growing demand and a weak supply response. Demand-side pressures have stemmed from growing population and rising incomes. Supply-side pressure have been triggered by a host of factors – increasing urbanisation, diversion of land for bio-fuel production, inadequate investment in research and technology, spikes in costs of inputs such as diesel and fertiliser and disturbances arising from climate change. Out of them one common example is increasing and decreasing cost of petroleum products which can significantly change the food prices in India.