A study by RBI economists found that average retail price rose over 6 per cent for several pulses, over 3.5 per cent for most edible oils, 15 per cent for potato and 28 per cent for tomato in the 28 days post-lockdown -March 24-April 21, 2020- compared to the month preceding the lockdown. Also, the gap between the wholesale and retail price inflation increased during the lockdown period which was attributed to higher transaction costs faced by traders primarily due to transport restrictions.
In May 2021 – the peak month of lockdown in the second wave – margins eased in cereals, pulses, edible oils and others, while it increased in vegetables.
The prices were impacted due to collapse of various mobility indicators, researchers pointed. Arrivals in mandis dropped, agri-markets were closed and daily movement of trucks collapsed to 10 per cent of normal levels. Google’s mobility index, which captures movement trends by region and by different categories of places, fell by 87 per cent for the retail and recreation category on April 18, 2020 during the first wave and again by 70 per cent on May 16, 2021 during the second wave.
The study notes that several factors can operate through many channels in such conditions to alter price mark-ups. First, a lockdown can affect the transportation of food products leading to high transaction costs as 92 per cent of all food consumed in India is purchased. Second, prices of certain agricultural products may increase because of labour shortages resulting from a decline in the number of migrant workers. Third the uncertainty about the duration and intensity of the lockdown may also prompt consumers to resort to panic buying and hoarding of essential food items, leading to temporary increases in demand during the lockdown period. Moreover, amidst disruptions in supply, such increases in demand may enable retailers to charge higher margins or mark-ups on the food items sold to consumers.
Overall, the results indicate that the impact of the lockdown measures on markups was less severe during the second wave compared to the first wave due to the less stringent and localised nature of the lockdown as well as better supply management by the governments during the lockdown.
