RBI can't ignore the costs of everyday items as PM Modi's economic adviser suggested
inflation met with skepticism from many economists, who say it’s inappropriate to ignore the costs of everyday items that consumers can’t do without.
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The prescription for inflation-minus-food found mention in the government’s pre-budget Economic Survey published last week. The report’s author and India’s Chief Economic Adviser V Anantha Nageswaran argued that since interest rates can’t control the prices of food, deploying short-term monetary policy tools “to deal with inflation caused by supply constraints may be counterproductive.”
Several economists, including Nomura Holdings Inc.’s Sonal Varma, view this proposal as infeasible in a country like India where food makes up nearly half of the consumer price index basket. Gains in already-elevated food inflation has meant India’s retail price-growth in June quickened for the first time in six months, dashing hopes for an interest-rate cut anytime soon.
The RBI currently has a mandate to keep headline inflation at the midpoint of a 2%-6% range, and adjusts monetary policy settings to achieve that end. The inflation target is reviewed by the government every five years, and the next revision is scheduled for March 2026.
“I don’t think excluding food price movements altogether from the inflation targeting framework is a suitable approach,” said Alexandra Hermann, an economist with Oxford
