A member of the RBI MPC predicts relief: India’s food inflation will lessen as things go

In the future, Ashima Goyal, a member of the RBI Monetary Policy Committee (MPC), believes that the issue of high food inflation in India will be “less severe” because new supply chains with varied sources will promptly handle abrupt spikes in the pricing of certain food products.

Goyal emphasized that food accounts for a large portion of the family budget in India and that policy should concentrate on raising agricultural production since stable agriculture prices are necessary for development that is not inflationary.

For a variety of reasons, the issue of excessive food inflation will lessen as India grows. She told PTI that “large spikes in specific items are quickly handled by modern supply chains with diversified sources.”

Goyal went on to say that mature economies do not hear about price spikes 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.

Goyal emphasized that expectations become more firmly grounded under 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, given its large population, India chose a distorting system of subsidies to farmers as well as consumers,” the speaker said. This made government investment in agriculture less feasible.

Furthermore, according to Goyal, it kept inflation high as annual increases in procurement costs occurred.

Though further policy adjustment is necessary, she emphasized that agricultural production is finally growing thanks to a policy reset and the availability of new technology.

Retail inflation fell to 4.85 percent in March, the lowest level in five months, mostly as a result of food prices cooling down, according to government statistics. In March, the food basket’s inflation rate decreased to 8.52% from 8.66% in February.

According to recent remarks made by RBI Governor Shaktikanta Das, the baseline estimates indicate that inflation would moderate to 4.5% in 2024–25 from 5.4% in 2023–24 and 6.7% in 2022–23.

In response to a query on the macroeconomic circumstances facing India at the moment, Goyal said that the framework for inclusive and sustainable development has been established.

According to her, “since 2021, we have seen results with continued robust growth, reduction in multidimensional poverty, more assets and infrastructure helping the lower income groups sustainably, and more opportunities for youth.”

Although inequality has increased, according to Goyal, the well-known “Kuznets inverted U-curve” indicates that this is typical at a time of rapid development and will eventually decline.

Nonetheless, the distinguished economist said that policy consistency is crucial for the economy to stay on this course.

Goyal said, “Even as supply-side enabling reforms continue, policy lessons on what worked must be internalized, domestic policy shocks avoided, and external shocks smoothed.”

“We live in troubled times of geopolitical, geoeconomic, and climate fragilities,” she said, highlighting the importance of boosting the economy’s resilience and diversification. The economy is predicted to increase at a pace of around 8% between 2023 and 2024 due to the industrial and infrastructure sectors’ strong performance.

The International Monetary Fund (IMF) has increased its growth estimate for India to 6.8% for 2024 from 6.5% in January, citing strong domestic demand conditions and an increase in the country’s working-age population.

The Asian Development Bank (ADB) also increased its prediction for India’s GDP growth in the current fiscal year to 7% from 6.7% before, noting that the strong growth would be fueled by a steady recovery in consumer demand as well as demand for investments from the public and private sectors.