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LATEST NEWS UPDATES | Monetary Policy Alone Inadequate To Tame Inflation -Dr. Amar Patnaik

Monetary Policy Alone Inadequate To Tame Inflation -Dr. Amar Patnaik

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published Published on Sep 10, 2022   modified Modified on Sep 12, 2022

-NDTV.com

At a time when Consumer Price Index (CPI) inflation has remained above RBI's upper tolerance level of 6% for seven consecutive months and the WPI inflation rates are at the highest levels since January 2007, it is good that the issue was finally discussed in parliament and the RBI's recent rate hike signals recognition of the concern. However, during the debate in the parliament, the Treasury bench largely took a view that there is no inflation in the country. If we are asking the top 1% of the country who possess 73% of all wealth, then of course it is not going to affect them. Inflation disproportionately affects the poor, middle class and rural areas.

The demand in rural economy was undergoing stress even before the pandemic due to lockdowns and disruptions at the global level. When we look at the inflation data, we find that CPI has grown at a higher rate in rural areas compared to urban areas since December 2021. This becomes more concerning due to high unemployment and declining rural wages. Recent data shows that despite fall in demand for work under MGNREGA, the work provided under the scheme is 27% more than the work provided in June 2019. This clearly indicates heavy dependence of households on MGNREGA in the absence of employment avenues. The nominal rural wages have also not increased in the current financial year while the real wage growth is behind the current rate of inflation, thus resulting in net income decline. This has led to increasing indebtedness in rural India. In 2021, rural indebtedness at 84% was almost double the urban indebtedness at 42%.

A steep increase in prices of essential commodities such as LPG, vegetables, petrol, etc. has significantly increased the cost of living in urban households while diminishing their purchasing power. Among urban households, urban poor constituting 20% of the population have probably suffered the maximum. According to CRISIL, the effective inflation for the urban poor was 6.3% in January 2022, 0.4% higher than the top 20% of households in urban India.

While government programmes such as LPG subsidy or PDS create some cushion against inflation, they exclude the middle class. For instance, the LPG subsidy only extends to 9 crore beneficiaries under the PMUY scheme, leaving an estimated 16 crore middle class households to bear the heavy cost of gas cylinders.

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NDTV.com, 10 September, 2022, https://www.ndtv.com/opinion/monetary-policy-alone-inadequate-to-tame-inflation-3330222


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