Constant rise in crude oil prices, unseasonal rains, poor monsoon may put market at risk with rising inflation

India's food grain production is estimated to decline 3.2 per cent to 257.07 million tonnes in 2014-15 against 265.57 million tonnes in the previous year, as per official data.  Across the country, 10 lakh hectares of standing crop has been destroyed due to unseasonal rains, the heavy loss is likely to have an adverse effect on prices of food items which may rise putting the Narendra Modi government in a crisis situation.

The wholesale price based inflation fell to 2.06 per cent in February. It was in negative territory for the fourth consecutive month. However the retail inflation rose to 5.37 per cent in February on higher prices of food items. The unseasonal rains could affect CPI inflation close to 6 per cent, as per few market experts. 

Even the RBI governor, Raghuram Rajan, too expressed cautious words about the food inflation and said "The government and the apex bank need to be more vigilant about the food price situation against the backdrop of unseasonal rains damaging some crops. We have to be more careful in food managementand have greater vigilance". 

This year, the June rainfall till date was worst in a century. The prices of food articles such as vegetable, edible oil and milk have already started moving up since last month and rose by 5 to 10 per cent. Some of the vegetables have risen by 30 to 50 per cent. Further, pain will be seen in coming months as there has been rise in the international crude oil prices. This rise will also contribute to food inflation in coming days. The increase in food inflation could be one of the hurdles for the Indian economy in coming days and create weakness in the market sentiments.