The consequences of inflation are many — eroding purchasing power, disrupting consumer spending and disrupting the economy’s equilibrium.
India is not immune to the inflationary winds blowing across the world. Price rise has emerged as a global economic concern, transcending boundaries. But the Narendra Modi government orchestrating a series of strategic measures to confront mounting pressures of inflation to shield the economy from its adverse repercussions is welcome.
The consequences of inflation are many — eroding purchasing power, disrupting consumer spending and disrupting the economy’s equilibrium. India, like its global counterparts, has grappled with factors ranging from escalating fuel costs, disruptions in supply chains, and spikes in global commodity prices.
In response, the Modi administration has adroitly embraced a multi-pronged strategy to tackle inflation head-on and mitigate its reverberations across the economic landscape. A central tenet has been an emphasis on fiscal discipline, curbing superfluous expenditures and directing resources to areas of vital significance.
In his Independence Day address, Prime Minister Modi spotlighted several pertinent aspects, and underlined India’s comparative stability. While some progress has been achieved in grappling with inflation, Mr Modi cautioned against complacency and affirmed his unwavering commitment to alleviate burden on citizens.
Swiftly, government insiders unveiled discussions about a substantial plan, totalling Rs 1 lakh crore, to quell the upswing in July’s inflation. This allocation will be orchestrated without straining the exchequer. The specifics and final verdict on this undertaking are anticipated in ensuing weeks, with potential measures encompassing tax reductions on fuel, relaxed import tariffs on essential commodities like cooking oil and wheat, among others.
This move would mark a second consecutive year of such manoeuvres, harking back to the Rs 2.1 lakh crores ($26 billion) initiative unveiled last year to mitigate costs for consumers. Recent reports indicate that retail inflation surged to a 15-month pinnacle of 7.44 per cent in July. Nevertheless, the finance ministry asserts the current inflationary surge is poised to experience rapid fall.
The Reserve Bank of India opted to leave borrowing rates untouched, flagging inherent risks associated with soaring prices. India’s standing as one of the world's fastest-growing economies lends credence to the notion that there is ample scope for addressing inflation.
The government, earlier this year, laid out its intent to curtail the fiscal deficit to below 4.5 per cent of GDP by 2025-26, given a fiscal deficit estimate of 5.9 per cent of GDP in 2023-24. The RBI August monthly bulletin highlighted that global economic resurgence has begun to decelerate post a robust initial quarter, while India's economic momentum has gathered steam in second quarter of 2023-24.
The Centre introduced the “PM Vishwakarma” central sector scheme, with a financial outlay of Rs 13,000 crores over a five-year span from 2023 to 2028. This initiative seeks to bolster artisans and craftspeople, aiming to enhance quality and accessibility of their products and services. Notably, the scheme provisions credit support up to Rs 1 lakh (first tranche) and Rs 2 lakhs (second tranche), coupled with a concessional interest rate of five per cent. Additional provisions encompass skill enhancement, toolkit incentives, support for digital transactions, and marketing assistance.
A multi-faceted strategy is needed to tackle inflation. A price stabilisation scheme will be key. This entails establishing a target price and guaranteeing to pay farmers this price. If market prices surge above this guarantee, market dynamics prevail. However, should market prices plummet below the threshold, the guaranteed price comes into play.
The twin pillars of manufacturing and infrastructure continue to stand as robust foundations supporting the economy and government policy continues to be the lighthouse in a stormy ocean.