The following points highlight the five main factors responsible for the rise in demand for food. The factors are: 1. Growth of Population 2. Increase in Money Supply 3. Hoarding of Food Grains 4. Planned Investment 5. Deficit Financing.
Factor # 1. Growth of Population:
The demand for food has been steadily rising in India. There are various reasons for this. In the first place, population has been rapidly mounting up. In 1901, India’s population was 361 million; it rose to 439 million in 1963 and to 547 million in 1971.
The estimated population in 1977-78 is 61.20. Since planning was introduced in 1951, population has gone up by about 121 crores people by 2011. Naturally, this additional population will have to be fed. The demand for food has, therefore, gone up. More demand means higher prices,
Factor # 2. Increase in Money Supply:
The demand for food has also gone up because of increase in money income with the ‘public. In 1950-51 the total amount money with the public in India was about Rs. 2,000 crores.
By 1970-71, the money supply had gone up to Rs. 7,140 crores and by 1977- 78. Dec. money supply had risen to nearly Rs. 15,110 crores. The supply of money has further increasing upto 99,324 crores by December 2010. Besides, there is plenty of black money. When people have a lot money with them, the demand for goods and services increases.
There are three reasons for increase in money supply with the people. In the first place, the Government has been spending large amounts of money on various projects under the Five-Years Plans.
The annual expenditure of the Government on these projects rose from Rs. 350 crores during the First Plan to Rs. 2,600 crores during the Fourth Plan Secondly, the Government has resorting to deficit financing, to pay for its expenditure on various projects. Thirdly, the banks have more cash with them and, therefore, they lend more this is known as credit creation. During 10th plans the supply of money has increased by 17.3 percent.
Factor # 3. Hoarding of Food Grains.
There is another reason for increase in demand for food grains now. At one time, the farmers used to sell their surplus produce soon after the harvest. But now-a-days, they keep their produce with them till they get better prices. Then there are the wholesale merchants who buy food grains from the farmers and hoard them up.
They have more funds with them and they are able to borrow from the banks additional funds for the purpose of buying and hoarding food grains. Finally, the consumers have started buying more than what they normally require, fearing that the prices may go up much higher.
Factor # 4. Planned Investment:
Though planned investment started much earlier, yet it was only after 1955 that it had a positive influence on the price level. From, about Rs. 240 crores in 1953-54, annual investment rose to nearly Rs. 2,000 crores during the Third Plan period and to Rs. 3,000 crores during the Fourth Plan period.
The annual investment during 5th Plan period would be Rs. 7,000 crores. The investment in agriculture increased to Rs. 36707 crores in 2010-11. Increased investment led to increased income and purchasing power in the hands of the public increase in demand for food grains, amount other things and consequent rise in prices of food grains.
Factor # 5. Deficit Financing:
While the volume of investment was increasing, there was an increased volume of deficit in planned expenditure. Deficit financing was of the order of Rs. 333 cores during the First Plan, Rs. 948 crores during the Second Plan, 1,133 crores during the Third Plan and Rs. 2,740 crores during the Fourth Plan.
The budget deficit increased to the extent of Rs. 25687 crores in 2009-10. Thus, there has been considerable amount of expenditure which has been financed by new money. Deficit financing has tremendous inflationary effect.
Other factors on the demand side which have been pushing the food grains prices continuously upward since 1961 are as follows:
1. High income elasticity of demand for food-grains of the bulk of the Indian population who live on the marginal level.
2. Change in the volume and pattern of food consumption of many sections of people and a clear shift from coarse grains to superior grains.
3. Increase in population and growing urbanisation due to the tempo of industrialisation and increase in the demand for rice and wheat as against millets.
4. Hoarding of food grains at all levels, viz., by producers, traders and even the consumers.
5. Speculation in food grains by the traders because of the conditions of instability in the markets.
6. Extensive use of black money by wholesale traders to corner the stock of food grains.