Inflation Has Been Witnessing Moderation Since 2014 In India

Inflation has been witnessing moderation since 2014 in India. The Economic Survey 2019-20 presented in Parliament today by the Union Minister for Finance and Corporate Affairs Nirmala Sitharaman states that recently inflation has however shown an uptick. Headline Consumer Price Index (CPI) inflation has increased from 3.7 per cent in 2018-19 (April to December 2018) to 4.1 per cent in 2019-20 for the corresponding period. Wholesale Price Index (WPI) inflation has seen an increase between 2015-16 and 2018-19. It however fell from 4.7 per cent in 2018-19 (April to December 2018) to 1.5 per cent during 2019-20 in the same period.

The Survey notes that during 2018-19, the major driver of CPI-Combined inflation was the miscellaneous group. However, during 209-20 (April -December), food and beverages emerged as the main contributor to CPI-C inflation. Among food and beverages, inflation in vegetables and pulses was particularly very high, mainly driven by low base effect and production side disruptions due to untimely rain. The Survey recommends that measures to safeguard farmers like procurement under Price, Stabilization, Fund, Minimum Support Price (MSP) needs to be made more effective.

The Survey notes a divergence between the retail and wholesale price of various essential agricultural commodities in the four metropolitan cities of the country over the period 2014 to 2019. The divergence was particularly high for vegetables like onion and tomato. This could be due to the presence of intermediaries and high transaction costs.

The Economic Survey says that over time, there has been shift in volatility of prices of essential commodities. Volatility of prices for most of the essential food commodities with the exception of some of the pulses has actually come down in the period 2014-19 as compared to the period 2009-14. This might indicate towards the presence of better marketing channels, storage facilities and effective MSP system for most of the essential agri commodities.

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