Sambhav-2024

• Start the answer with a discussion that sets a context for the question.
• Discuss the factors contributing to the recent inflation trends in India.
• Evaluate the measures taken by the authorities to address the inflationary pressures.
• Conclude suitably.

Introduction

India witnessed moderately high food inflation in recent times, generally oscillating between 8% and 12%. The country's inflation dynamics were influenced by various factors, including domestic economic activities, monsoon patterns affecting agricultural output, and policy decisions.

Body

Factors Contributing to Inflation:

• Supply Chain Disruptions: The COVID-19 pandemic and Russia- Ukraine tension disrupted global supply chains, leading to shortages of raw materials and intermediate goods, pushing up prices.
• Rise in Crude Oil Prices: India is heavily reliant on imported crude oil. The increase in global crude oil prices has contributed to higher transportation costs, impacting the prices of essential commodities.
• Food Inflation: Inadequate monsoon rains and supply chain disruptions have led to a rise in food prices, which has a significant impact on overall inflation due to the large share of food in the consumption basket.
• Increase in Demand: With the economy recovering from the pandemic-induced slowdown, there has been an increase in demand for goods and services, putting upward pressure on prices.
• Global Commodity Prices: The increase in global prices of commodities like metals and edible oils has contributed to inflationary pressures in India, as these are key inputs for various industries.
• Built-In Expectations: In this case, businesses raise prices in anticipation of higher costs, and consumers, expecting further increases, may buy more now, contributing to inflation.
• Wage-Price Inflation: When workers demand higher wages, businesses may raise prices to cover the increased labor costs. This, in turn, prompts workers to seek higher wages, and the cycle continues.

Government and Regulatory Measures:

• Monetary Policy: The Reserve Bank of India (RBI) has raised the repo rate to curb inflation by reducing money supply and increasing the cost of borrowing and conducts Open Market Operation (OMO) by buying or selling government securities in the open market. These operations impact the money supply, which, in turn, affects inflation.
• Fiscal Policy: The government has focused on fiscal consolidation to reduce the fiscal deficit, primary deficit etc, which can help in reducing inflationary pressures by containing demand such as 4.5% limit of Fiscal deficit by 2025-26.
• Supply-Side Interventions: The government has taken measures to address supply-side constraints, such as increasing the Minimum Support Prices (MSPs) for crops, improving storage and distribution infrastructure, and promoting agricultural reforms to increase productivity.
  • The government also banned wheat and broken rice exports in response to a sudden increase in global wheat and rice prices, which led to domestic shortages and a surge in prices.
• Import Duty Reduction: To counter the impact of rising global commodity prices, the government has reduced import duties on certain commodities to ease price pressures.
• Food Management: The government has implemented various schemes like the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) to provide subsidized food grains to vulnerable sections of society, helping in stabilizing food prices.
• Anti-Hoarding Measures: This helps in maintaining a fair market and controlling inflation. Essential Commodities Act, 1955 has been largely ineffective in preventing hoarding by the wholesalers.
• Exchange Rate Management: The government monitors and manages the exchange rate to ensure competitiveness in international trade. The Public Debt and Exchange Rate Management Agency should be set up by the government to regulate exchange rates.
• Monitoring and Surveillance: Regulatory authorities like the RBI and think tanks such as NITI Aayog and the Ministry of Finance are closely monitoring inflation trends and taking preemptive measures to control inflation expectations.

Conclusion

The recent inflation trends in India have been driven by a combination of domestic and global factors. The government and regulatory authorities have taken proactive steps to address these pressures, but sustained efforts are required to ensure price stability and support economic growth.