Cost of dal-Roti

General Studies Paper 3

Recent context:

• Recently, as per according to data released by the Ministry of Statistics and Programme Implementation, Consumer price inflation has fallen from 7.4 per cent to 5 per cent year-on-year between July and September, below the Reserve Bank of India’s 6 per cent upper tolerance limit.

What is the Inflation target?

• Under the Section 45ZA of RBI act1934, the Central Government, in consultation with the RBI, determines the inflation target in terms of the Consumer Price Index (CPI), once in five years and notifies it in the Official Gazette
• Under which Central Government notified in the Official Gazette 4 per cent Consumer Price Index (CPI) inflation as the target for the period from August 5, 2016 to March 31, 2021 with an upper tolerance limit of 6 per cent and the lower tolerance limit of 2 per cent.
• On March 31, 2021, the Central Government retained the inflation target and the tolerance band for the next 5-year period – April 1, 2021 to March 31, 2026.
• Section 45ZB of the RBI Act provides for the constitution of a six-member Monetary Policy Committee (MPC) (which is headed by RBI governor) determine the policy rate required to achieve the inflation target.
• Therefore, the Inflation target is set by the central government and it is maintained by RBI through monetary policy tools.

The main contributor to inflation: food-based items

• It has come on the back of retail food inflation registering an even sharper decline, from 11.5 per cent to 6.6 per cent, during this period.
• Much of the food inflation is at present concentrated in cereals (10.9 per cent) and pulses (16.4 per cent), while the price increases in vegetables and milk — items that were a source of angst until recently — have considerably moderated
• There is also relief on the vegetable prices front than tomatoes, whose annual inflation has collapsed from a mind-boggling 202.1 per cent in July to minus 21.5 per cent in September.
• Edible oil inflation has been in negative or low single-digits for over a year. Inflation has been high for salt and spices, but sufficiently under control in sugar
• The long and short of it is that food inflation is no longer generalised. While it’s early to say that the worst is over, El Niño’s impact hasn’t been as bad as was feared.
• There was definitely a lot to worry about when India recorded the driest and also the hottest August this time. However, rainfall was 13.2 per cent surplus in September

Adequate rainfall is September will positively affect rabi crops

• Apart from providing life-saving showers for the standing kharif crop, it has pared the overall water level deficit in major reservoirs (relative to the 10-year average) to 5.6 per cent, from 13.8 per cent on September 6.
• Reasonably filled-up dam reservoirs and recharged groundwater tables should enable plantings for the coming rabi season, the prospects for which seemed dire till the monsoon staged a timely recovery in September.
• This should, for now, keep a lid on food prices in general. Food inflation is, if at all, limited to “dal-roti” — unlike when its effects extended even to sabzi and doodh.

Way forward:

• If food inflation isn’t across-the-board, it calls for a more nuanced approach from the government that balances both consumer and producer interests.
• Currently, it has chosen a sledgehammer strategy to keep prices low at all costs — through export bans/restrictions (on wheat, sugar, onion and most rice) and stocking limits (pulses and wheat).
• Privileging consumers over producers may be politically expedient too, as the former generally outnumber the latter.

Conclusion

The government also needs to take a view beyond elections: Are excessively pro-consumer policies conducive for investments in a sector with the highest employment potential, both on- and off-farm.