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Should India cheer the decline in inflation rate or mourn it as this was caused largely by a fall in the prices of agricultural produce and thus, would affect the country’s farm economy? The softening of inflation rate would help to protect the purchasing power of an average Indian, but the fall in prices of agricultural goods would trim down the earnings of farmers, who are already in distress. In fact, Indian farmers have long been blaming the low prices of agricultural goods as the main cause of their suffering.

The government has raised the MSP by 1.5 times of input cost. But this has hardly helped the farmers’ cause. As per the Shanta Kumar Committee, only 6% farmers get the benefit of MSP. If this is true, the raising of the MSP by 1.5 times of input costs has no meaning for the remaining 94% of the farmers.

Indian farmers in desperation have been trying to promote their cause at different forums. There was the long march of Nasik’s farmers to Mumbai in 2018. They have begun it again as the promises made then are unfulfilled.

The government will probably come out with another fresh formula to appease the farmers’ grievances; it may come out with another round of loan waiver scheme or may increase the amount of money it has promised to give to every small farmer with land up to two hectares. But the root cause, unremunerative prices of products, will wait for fresh initiative. If so, Prime Minister Narendra Modi’s call for doubling farmers’ income in six years will remain an illusion.

India’s retail inflation eased to a 19-month low in January 2019 justifying the central bank’s decision earlier to lower policy rates to promote industrial investment. Consumer prices rose 2.05% in January from a year earlier. This compares well within the Reserve Bank of India’s 2.8% projection for January to March, 2019.

The RBI projected the inflation outlook to remain soft in the near term while flagging certain risks which merit "careful monitoring" beyond near term. These include reversal in vegetable prices, uncertainty in trade tensions and geopolitics which could impact commodity prices.

The central bank in its sixth bimonthly policy review had earlier revised downwards the path of inflation to 2.8% in the fourth quarter of 2018-19, 3.2-3.4% in first-half of 2019-20 and 3.9% in the third quarter of 2019-20, with risks broadly balanced around the central trajectory. This is the sixth straight month where the inflation has remained below the RBI's medium term target of 4%. A year ago in January 2018, the retail inflation was at 5.07%.

Decelerating inflation, along with macro indicators pointing to slowing economic activity will now keep pressure on the central bank to lower policy rates further – something which our industries and the finance ministry have long been pleading for.

India isn’t the only country where inflation has turned sluggish, with consumer prices easing across Asia and other major economies. The US and China are experiencing sluggish consumer price inflation and hoping that their respective central banks steer away from tighter monetary policy.

This will probably allow RBI to cut policy rates further. Even otherwise, lower inflation, particularly food inflation is expected, at least theoretically, to push up demand as consumers will have more money in their hands. The money which they will now save due to lower food expenditure can be spent for other necessities.

These are good news for the economy, but only partially. For, the recent fall in consumer price index, which RBI uses as a benchmark for taking a decision on policy rate changes, has come at the expense of the farmers.

How serious is the issue? Look at the statistics: The price index of cereals and its products, which accounts for a big portion of farmers’ income, has increased by 0.88% between January 2018 and January 2019. There are no estimates of farmer’s input cost during this period, but one can safely assume that the rise of input cost will be more than 0.88%. And this difference is the loss that the farmer has incurred. Further, the price rise is 0.7% in rural sector and 2.75% in urban areas and that would mean that even the overall increase of 0.88% in prices did not fully benefit the farmers but has gone to middlemen who bought the produces at lower rates in rural market and sold them to urban consumers at a premium.

If the price index of cereals and products has increased at a lower rate in January 2019, the overall food inflation during this time was down by 2.17%. Overall food inflation had declined by 2.51% in December 2018 compared to the same month a year ago.

This is reflected in the sharp fall in prices of a number of cash crops, which often help farmers to insulate themselves from crop failures. The price index of vegetables nose-dived from 151.6 in January 2018 to 131.4 now – down by 13.32%. The price of sugarcane has gone down by 8.16% and that of pulses and its products by 5.5% during the period.

This happened at a time when the production cost of farm products increased. The prices of fertilisers, the main constituents of agricultural inputs increased sharply last year. According to an assessment done by ICRA, DAP prices increased by 12-13% from the kharif season of 2018 to the rabi season, while MoP rates have gone up by 25-30% during the same period.

The depreciation of rupee against the US dollar made import of key raw materials costly, thus impacting the retail price. Most key inputs for DAP and NPK are imported and any jump in international rates has a direct bearing on them. In the case of MoP, the contract rates have increased manifold in the last one year.

For an average farmer, this nullified the impact of the centre’s much-talked about fixing of MSP at 50% more than the A2+FL cost of production. And now the decline in the prices of agricultural products would surely, leave them in arrears.

It’s left to the country whether to celebrate the fall in retail inflation rate, lead to interest rate cut, and make funds cheaper or to lament it since lower prices of farm produces would force farmers to go for more debts.