With the campaign for the Assembly polls at its peak, the latest inflation data would help the BJP further bolster its claim to be a competent manager of the economy. The Reserve Bank of India’s Monetary Policy Committee on Monday released the latest data on consumer price inflation. Inflation declined for the second straight month in October, to 4.87% against 5.02% in the previous month. It was 7.44% in July. Further, core inflation, which excludes food and fuel inflation, is now at a 43-month low. However, food inflation can be a cause for concern given that prices of both cereals and pulses continue to be under pressure. Both have been in the grip of double-digit inflation for over a year. Erratic monsoon is said to be the main cause for the prices of pulses and cereals to remain on the higher trajectory. Also, the area under cultivation, as per official data, has shrunk somewhat, resulting in a fall in production in the latest kharif season to the tune of 6.6 million tonnes of rice while in the case of pulses a similar shortfall over the previous year’s crop is estimated. The pressure on the prices of these commodities is sought to be circumvented by stricter controls against hoarding as also by strong curbs on exports.
Fortunately, the prime minister’s free food scheme which makes available wheat and rice to over 800 million Indians every month has not only ensured a lifeline for the extremely poor households but has helped to keep the prices of these items in the open market under check. Notably, the free food provision is in addition to the continuing availability of highly subsidised monthly rations under the old Public Distribution Scheme. It is a different matter that the Finance Ministry has reckoned that the huge expense of PM’s free-food scheme burns an equally huge hole in the overall budget. In the current financial year, the subsidy bill is estimated to be ₹2.14 trillion, nearly ₹20,000 crore higher than the budgeted amount. The primary reason for the cost overrun is the hike in the Minimum Support Price for wheat and rice this year.
Launched initially to mitigate the misery of the poor during the Covid pandemic, the scheme seems to have acquired a semi-permanent character, with the ruling party reluctant to stop it fearing voter resentment. Already the government has announced that the special free food provision would continue next year which, incidentally, will see a general election. Meanwhile, the government has also ensured that the oil marketing companies do not pass the additional burden of costly crude to consumers, a policy positive put in place by the Narendra Modi government in its first years in office.
Public sector oil companies, however, may be obliged to increase retail prices of petrol and diesel should the ongoing Israel-Hamas war spill into a wider conflagration, causing disruption in both production and distribution of crude by the major West Asian producers. Meanwhile, it is fair to speculate that at its meeting next month the MPC would leave the policy rate unchanged given the benign consumer inflation and a positive growth trend in the economy.