The Indian economy has recently seen a significant moderation in retail inflation, which has been a cause for relief for both the government and the general public. According to the Economic Survey, this moderation can primarily be attributed to the general disinflationary trend in food and fuel prices, which together account for 52.7 per cent of India’s Consumer Price Index (CPI) basket.
The survey, which was presented by Finance Minister Nirmala Sitharaman on 29th January 2021, highlighted the positive impact of the government’s efforts in controlling food and fuel prices. This has not only helped in bringing down the overall inflation rate but has also provided much-needed relief to the common man who has been facing the brunt of rising prices.
The CPI is an important indicator of inflation as it measures the change in the prices of a basket of goods and services consumed by households. It is a crucial factor in determining the purchasing power of the general public and their ability to make ends meet. Therefore, the moderation in retail inflation is a positive sign for the Indian economy as it reflects the government’s success in controlling inflationary pressures.
The survey further highlighted that food inflation has been on a downward trajectory since December 2019 and has remained below 4 per cent for the past 12 months. This is a significant achievement considering that food inflation has been a major concern for the Indian economy in the past. The government’s focus on increasing agricultural productivity, improving supply chain management, and controlling prices of essential commodities has played a crucial role in this moderation.
Another major contributor to the moderation in retail inflation is the decline in fuel prices. The survey noted that fuel inflation has been on a continuous decline since October 2018 and has remained below 3 per cent for the past 12 months. This can be attributed to the government’s efforts in deregulating fuel prices and passing on the benefits of falling crude oil prices to the consumers.
The moderation in retail inflation has also been aided by the RBI’s monetary policy actions. The central bank has been maintaining a cautious stance on inflation and has kept the policy rates low to support economic growth. This has helped in containing the overall inflation rate and has provided relief to the common man, especially during the COVID-19 pandemic when the economy was facing severe challenges.
The general disinflationary trend in food and fuel prices has not only helped in moderating overall inflation but has also had a positive impact on rural and urban inflation. The survey noted that rural inflation has been consistently lower than urban inflation for the past three years, which is a positive sign for the rural economy.
The moderation in retail inflation is expected to continue in the near future as well. The survey projected a CPI inflation rate of 4.5 per cent for the financial year 2020-21, which is well within the RBI’s target of 4 per cent with a tolerance band of +/- 2 per cent. This is a testament to the government’s efforts in controlling inflation and maintaining price stability in the country.
In conclusion, the moderation in retail inflation is a positive development for the Indian economy. The government’s focus on controlling food and fuel prices, along with the RBI’s monetary policy actions, has helped in containing inflationary pressures and providing relief to the general public. This, in turn, will have a positive impact on economic growth and the overall well-being of the country. As we move towards a post-pandemic world, it is crucial to sustain this moderation in inflation to ensure a strong and stable economy for all.
