A member of the RBI MPC forecasts “less severe” rising food inflation

A member of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) emphasized that as India grows, the issue of excessive food inflation will become “less severe.”

 

According to her, current supply chains with a variety of suppliers may assist in promptly addressing unexpected price increases for certain food products.

Goyal also emphasized that food accounts for a large portion of the family budget in India and that, given the importance of stable agricultural prices for non-inflationary development, the policy should concentrate on raising agricultural production.

According to her, sophisticated economies do not hear about soaring prices for tomatoes or onions. “Because our geographic regions are naturally diverse, better integrated markets that source from various regions can help mitigate food price spikes caused by climate change,” the speaker said.

Furthermore, she pointed out that future food price shocks would have a less effect and affect fewer people as the proportion of food consumed decreases and food consumption becomes more diverse.

It should be noted that the cooling of food prices in March caused retail inflation to drop to a five-month low of 4.85%. The food basket’s inflation rate decreased to 8.52% in March from 8.66% in February.

The MPC member also said that expectations become more grounded when there is flexible inflation targeting. She gave the example of East Asia, where subsidies for agriculture were only given after food budget percentages decreased and food prices were permitted to increase.

“Unfortunately, India chose to implement a consumer-and farmer-distorting subsidy scheme. This was exceedingly costly given India’s large population and limited the amount of area available for government investment in agriculture, the speaker pointed out.

Shaktikanta Das, the governor of the Reserve Bank of India, said earlier this month that the baseline predictions indicate inflation slowing to 4.5% in 2024–25 from 5.4% in 2023–24 and 6.7% in 2022–23.

The Asian Development Bank (ADB) increased India’s GDP growth prediction for the current fiscal year to 7%, while the International Monetary Fund (IMF) also increased India’s growth projection to 6.8% for 2024.