A STORM WEATHERED

Policy measures and repo rate increases have helped India navigate the pandemic and war-fuelled price rise

HIGH PRICES HAVE BEEN A BUGBEAR FOR THE Narendra Modi government since 2014. The pandemic and the current conflagrations in Ukraine and West Asia made things worse in its second term.

Though multiple measures by the RBI and the Centre ensured consumer price index (CPI) inflation held at 5 per cent between 2014-15 and 2022-23 on average, inflation shot up to 7.2 per cent in April 2020 and peaked to 7.6 per cent that October, well above the RBI’s 6 per cent limit. While the central bank was forced to keep interest rates low during the pandemic to boost consumption, the imperative reversed from May 2022 onwards. The RBI hiked the repo rate (at which it lends to commercial banks) by 2.5 percentage points— from 4 per cent in May 2022 to 6.5 per cent in February 2023; it remains unchanged even though inflation has eased. The Centre, meanwhile, reduced excise duty on petrol and diesel, prohibited wheat export, imposed duty on rice export and maintained buffer stocks for onion and pulses. While fuel inflation has been under check due to fears of a slowdown in global markets and the war, and core inflation (which excludes food and fuel) is down as input costs are moderating, food inflation remains a worry. That is because, as D.K. Joshi, chief economist with Crisil, explains, “The food basket has about 45 per cent weightage in CPI. Agriculture has been underperforming.” Average annual inflation between FY14 and FY23 declined to 5 per cent from 8.2 per cent between FY04 and FY14. CPI inflation stood at 5.09 per cent in February, within the RBI’s 2-6 per cent tolerance band for the sixth consecutive month. However, RBI governor Shaktikanta Das has ruled out any further reduction in interest rates, holding on to the rate in its April 5 review. ■

Food inflation is a problem. The food basket has 45 per cent weightage in CPI. Agriculture has been underperforming

—D.K. JOSHI,

Chief Economist, Crisil