Economic Survey highlights inflation projections and agricultural reforms for FY26

The Economic Survey tabled in Parliament on Friday aligns with the Reserve Bank of India’s (RBI) projection of headline inflation for FY26 at 4.2 percent and 4.8 percent in the current fiscal year.

With the Union Budget set to be presented on Saturday, the Economic Survey stressed the role of a few key commodities—Tomato, Onion, and Potato (TOP)—in driving food inflation. When these three price-sensitive vegetables were excluded, the average food inflation in FY25 (April-December) stood at 6.5 percent, which is 1.9 percentage points lower than the overall food inflation rate.

Similarly, excluding the impact of TOP, the headline inflation rate was 4.2 percent, which is 0.7 percentage points lower than the current headline inflation.

Despite a global decline in food inflation, India continues to face persistent inflationary pressures in specific food categories, primarily due to supply chain disruptions and adverse weather conditions affecting production.

The moderation in global commodity prices is expected to help ease India’s domestic inflation. The survey highlights that a normal southwest monsoon in 2024 has considerably improved water reservoir levels, ensuring adequate irrigation for rabi crop production.

The first advanced estimates of agricultural production for 2024-25 predict a 5.7 percent increase in Kharif food grain production. Rice and tur production are expected to increase by 5.9 percent and 2.5 percent, respectively, compared to 2023-24, which may contribute to alleviating food inflation in the months ahead.

However, the survey also noted potential risks to food inflation due to rising international vegetable oil prices. To ensure long-term price stability in essential food commodities, the government is focusing on structural reforms.

A key strategy is enhancing research and development in agriculture, particularly in developing climate-resilient crop varieties, which could help improve yields and reduce vulnerability to production losses.

Additionally, the government is encouraging increased cultivation in rice-fallow regions to address India’s persistent deficit in pulses and oilseeds. Strengthening data collection and price monitoring systems is another important step, with the government implementing mechanisms to track prices, stock levels, and storage facilities at various administrative levels.

The survey further pointed out that extreme weather events such as cyclones, floods, droughts, and unseasonal rainfall have worsened food price volatility.