International Business Case Chapter 5

Food prices are rising faster in India than in other large economies. As the country's population continues to grow and middle class incomes rise, there is increasing pressure on the government to provide food for the entire country. Despite rapid economic growth over the past decade, India still struggles to feed its population: According to the 2005/2006 National Family Health Survey, 40 percent of children below the age of 3 were underweight and 45 percent were stunted.7 Lack of investment has kept domestic agricultural productivity low as manual labor remains the dominant source of domestic food production. In 2008/2009, agriculture employed about 52 percent of the labor force, but only made up 13 percent of India's GDP.8 Farming and agriculture remain greatly inefficient and inadequate for feeding the country's 1.2 billion people. Low production and an unusually wet summer in 2010 contributed to the current domestic food inflation that reached a 16 percent annual rate in January 2011. This composite figure masks the rise in the price of some staples, such as onion and garlic, which rose by 71 percent during the past year. The sharp increase is most alarming for the 41 percent of the population in India who live on $1.25 or less a day and spend a majority of their income on food, as even basic items are becoming unaffordable.9 The government is responding to the current crisis by providing heavy subsidies for agricultural production and by importing increasing amounts of some staples, such as lentils and beans, to ensure their availability. It has also put export restrictions on certain products to keep them for domestic consumption.10 These policies can only provide temporary solutions, however: Long-term investment is required in agricultural research to improve the quality of seeds, irrigation techniques, and modernize other production components