COVID-19 lockdown and prices of essential food items in India: examining law of one price

Abstract

Purpose This study examines whether the law of one price (LOP) or price convergence holds during the COVID-19 pandemic for essential food items in India.Design/methodology/approach The authors use the daily retail price data of 22 essential food items from 103 Indian markets for two years (2019 as pre-COVID and 2020 as COVID period). Pesaran's (2007) second-generation panel unit-root test has been used to examine the price convergence of essential food commodities across various markets of different zones in the pre-COVID and COVID periods.Findings The authors find a tendency toward the convergence of prices across the spatially segregated markets for essential products. But, during the COVID period, there is a weak or no convergence of prices for essential food items. Hence, the LOP does not hold during the pandemic, indicating massive price deviations for food items across Indian markets. This has severe implications for food security as enormous price increases in some markets have been evidenced during the pandemic.Research limitations/implications The study calls for immediate policy adoption to restore the disrupted supply chain of essential food items. Along with that, the public authority should strictly prohibit black marketing and unlawful hoarding of essential food items. In addition, farmers should be provided direct cash benefits for restoring their farming activities.Originality/value This paper is first study to examine that hypothesis of LOP in the context of COVID crisis.