Ranjit K. Jain
| Photo Credit: Special Arrangement

 According to WPI data, deflation in food articles was 4.16%in November, compared to 8.31% in October. File.
| Photo Credit: Reuters

By staying patient, informed and disciplined, you can break the loop of ‘artificial demand’ and avoid inflated prices. Allow time for the situation to settle. File.
| Photo Credit: Reuters

Union Finance Minister Nirmala Sitharaman speaks in the Rajya Sabha during the Budget session of Parliament, in New Delhi, Thursday, Feb. 13, 2025.
| Photo Credit: PTI

Food prices are expected to be under control in the coming year, going by advance estimates of crop output, but the government will keep monitoring prices and act to ensure that ordinary citizens are not burdened by inflation, Union Finance Minister Nirmala Sitharaman told the Rajya Sabha on Thursday.

Responding to members’s concerns about high inflation during the discussion in the House on the Union Budget 2025-26, Ms. Sitharaman said the latest Consumer Price Index (CPI) showed price rise eased to 4.31% in January from 5.22% in December and is now close to the Reserve Bank of India (RBI) target of 4%.

“So there’s a steep correction, particularly in potato, onion, and tomato prices, which are key components in the CPI food basket, and additionally, the decline in pulses inflation, supported by tariff-free imports for the pulses we don’t adequately produce domestically for our consumption. As per the RBI’s report of February 7, CPI inflation for 2025-26 is projected to average only 4.2%,” she said.

Before outlining the Budget’s steps to boost output in the farm sector, including targeted interventions for pulses, vegetables, fruits, and high-yielding seeds, Ms. Sitharaman said that food inflation gets triggered “when you have an adverse weather condition and supply chain disruptions”. A Group of Ministers (GoM) is overseeing the situation so that timely imports happen when there is a supply shortfall.

“With the first advance estimates of agricultural production of 2024-25 being what it is, kharif food grain production is expected to rise 5.7% and the production of rice and tur dal is expected to increase by 5.9% and 2.5%, respectively, compared to 2023-24. So the prices of food will be well under the inflation radar, with the kind of advance estimates which we are getting, but despite that, the GoM will be keenly monitoring,” the Minister said.

With the economy expected to grow 6.4% this year, the Budget aims to accelerate growth, secure inclusive development, invigorate private sector investments, uplift household sentiments, and also directly or indirectly enhance the spending power of the rising middle class, Ms. Sitharaman said.

Stressing that the Budget has been made during a “very difficult time” when external challenges are “very severe” and beyond the realm of projections or predictions, the Minister cautioned that this immense uncertainty is still playing out and many Indian imports critical for the economy are also going to be mired in uncertainty.

The world’s economic order is seeing a major change from what used to be the mantras of recent decades, she said, pointing to globalisation being marred by fragmentation, fiscal prudence being hit by the rising debts of countries, and multilateral bodies getting diluted and not exerting themselves while bilateral and regional forums are calling the shots. “Everybody wants a global free market situation but you have aggressive tariff and non-tariff barriers, when it comes to their interests,” she underlined.

“But despite that, we have tried keeping the assessments as close as possible to what can develop, keeping India’s interests topmost… we are trying to make sure that the Budget somewhat at least foresees all this, and is ready for such eventualities,” she said. Ms. Sitharaman said, thanking the more than 90 MPs who spoke in the discussion.

Image for representative purpose
| Photo Credit: PTI

India’s industrial output growth dropped to a four-month low of 3.2% in December, with manufacturing and mining sectors rising just 3% and 2.6%, respectively, and consumer non-durables’ production slipping 7.6% from a year ago.

The National Statistics Office (NSO) also downgraded the industrial production growth assessment for November 2024 to 5% from 5.2% estimated earlier. Despite the weaker growth number relative to the previous month and December 2023, when factory output had risen 4.4%, the Index of Industrial Production (IIP) was at a nine-month high.

At 157.3 points, the IIP was 6.1% over November, and reflected the strongest output levels in financial year 2024-25. The Manufacturing as well as the Mining sectors recorded their best index reading this year.

Electricity generation was up 6.2% year-on-year and 4.7% over November 2024 levels.

Five of six industrial segments based on the end-use of products recorded an uptick in December, led by capital goods (up 10.3%) and consumer durables (8.3%). Infrastructure and construction goods rose 6.3, while intermediate goods and primary goods grew 5.9% and 3.8%, respectively.

Consumer non-durables remained a worry, with production shrinking 7.6% in December and the mere 0.6% growth estimated for November being revised downward to 0.4%. However, absolute output levels were at an 11-month high in December and 5.1% over November.

Within manufacturing, 16 of 23 industry groups recorded growth in December, with electrical equipment (up 40.1%), basic metals (up 6.7%), and coke and refined petroleum products (rising 3.9%), making the most significant contribution to growth. Based on end-use classification, the top three contributors to growth in December were primary, intermediate and infrastructure/construction goods.

India needs to develop climate-resilient crop varieties and enhance yields to increase the production of pulses, oilseeds, tomatoes and onion to ensure long-term price stability, the Economic Survey 2024-25 said. File
| Photo Credit: Sandeep Saxena

India needs to develop climate-resilient crop varieties and enhance yields to increase the production of pulses, oilseeds, tomatoes and onion to ensure long-term price stability, the Economic Survey 2024-25 on Friday (January 31, 2025) said amid persisting concerns over food inflation.

The Survey, tabled by Finance Minister Nirmala Sitharaman in Parliament, emphasised that India’s food inflation rate has remained firm, driven by a few food items like vegetables and pulses.

Economic Survey 2024-25 LIVE

The contribution of vegetables and pulses to the overall inflation stood at 32.3% in 2024-25 (April to December).

When these items are excluded, the average food inflation rate for FY25 (April-December) was 4.3%, which is 4.1% lower than the overall food inflation, the Survey said.

It also underlined that extreme weather conditions — such as cyclones, heavy rains, floods, thunderstorms, hailstorms, and droughts — impact vegetable production and prices.

These adverse weather conditions also present significant challenges to storage and transportation, resulting in temporary disruptions to the supply chain and causing an increase in vegetable prices, it added.

The pre-Budget document further said the price pressures in tomatoes remained intermittently high since fiscal 2022-23 due to constrained supply.

Despite earnest efforts by the government, tomato prices remained high due to its highly perishable nature and production concentrated in few states, it added.

“To increase the production of pulses, oilseeds, tomato and onion, focused research is needed to develop climate-resilient crop varieties, enhancing yield and reducing crop damage,” the Survey suggested.

Farmers should receive training on best practices, the use of high-yield and disease-resistant seed varieties, and targeted interventions to improve agricultural practices in the major growing regions for pulses, tomatoes, and onions, it noted.

The survey also called for implementing robust data collection and analysis systems to monitor prices, stocks, and storage and processing facilities is essential in various tiers of government.

“This data should be used to identify areas for improvement and make informed policy decisions. High-frequency price monitoring data for essential food items collected by various agencies within the country may be linked to quantify and monitor price build-up at each stage from the farm gate to the final consumer,” it said.

Despite challenges, the RBI and the IMF project that India’s consumer price inflation will progressively align towards the inflation target of around 4% in fiscal 2025-26.

The RBI expects headline inflation to be 4.2% in FY26. IMF has projected an inflation rate of 4.4% in FY25 and 4.1% in 2025-26 for India.

Village women work under MGNREGA scheme at Jagannath Prasad village in Odisha
| Photo Credit: Gerra Madhusudan 10751@Chennai

The share of the Union Budget allocated for the social sector has declined rapidly in recent years. Data show that the outlays to most schemes under the rural development, education, health, and social welfare heads have either declined or stagnated.

Table 1 shows the allocations for various social sectors as a share of the total Budget.

Expenditure on health as a share of the total Budget declined from 2.47%-2.22% in the FY18-22 period to 1.85%-1.75% in the FY23-25 period. The share of the total Budget allocated to the Ministry of Rural Development did not cross the 6%-mark in the last three years, which was the case for many years prior.

Similarly, allocations for higher education as a share of the total Budget declined from the 1.57%-1.37% range in FY17-20 to 1.27%-0.88% in FY21-25. Allocations for school education declined from the 2.18%-1.96% range to 1.61%-1.23% and allocations for social welfare schemes declined from the 1.89%-1.61% range to 1.17%-0.97% in the same period.

The reduced allocations can be better understood at the scheme level. Table 2 shows the allocations for various social sector schemes as a share of the total Budget.

Notably, allocations for schemes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), introduced under the United Progressive Alliance government, have declined significantly over time.

The ₹86,000 crore (Budget Estimates) allocated for MGNREGS for 2024-25 formed only 1.78% of the total Budget, a 10-year low. Latest data show that the Rural Development Ministry was short of ₹4,315 crore, which resulted in a delay in the disbursement of wages to MGNREGS workers.

Allocation for the national social assistance programme, which includes old age pension, widow pension, and disability pension, has declined as a share of the total Budget from the range of 1.21%-0.36% in the years FY19-21 to about 0.2% in the last four years.

The allocations for the Pradhan Mantri Poshan Shakti Nirman (PM-POSHAN) scheme as a share of the total Budget declined to 0.26% in FY25 (Budget Estimates) — the lowest in the last nine years — except FY24 (Revised Estimates).

The primary objective of the scheme is to improve the nutritional status of children studying in Classes 1 to 8 in eligible schools. It was earlier known as the National Programme of Mid-Day Meals in Schools.

There were some exceptions to this trend: allocations under the Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (PMJAY), the Pradhan Mantri Awas Yojna (PMAY)-Rural, and PM Schools for Rising India (PM SHRI) as a share of the total Budget were on an increasing trend or at least stagnating. Notably, all these schemes were launched post 2014.

With the Budget for the next financial year set to be presented on February 1, it will be crucial to examine how the declining allocations for the social sector are being addressed. The sector has under its umbrella a host of important schemes, as shown in Table 3. The table shows major expenditure heads under each social sector.

The number in the table corresponds to a scheme/expenditure head’s share in each sector’s total budget. For instance, about 33% of the health budget for the current year went to a flexible pool to be used by States for their health needs and 20.6% was allocated to autonomous bodies such as AIIMS. Close to half of the rural development budget was given to MGNREGS and over 30% went to PMAY-Rural.

Source: The data for the charts were sourced from Union Budget documents

sambavi.p@thehindu.co.in

vignesh.r@thehindu.co.in

samreen.wani@thehindu.co.in

When Julius Caesar’s Senate fixed January 1 as the ‘first day of the year’, the idea wasn’t only to ‘start afresh’. It was also when those in civil office were to set in motion their responsibilities. In that tradition, coming down from 45 BC, let the existing coalition government headed by Narendra Modi set out to focus and do a lot better with this list: Top 25 Must Get Done In 2025.

1. Control inflation: Retail inflation reached a 14-month high of 6.21% and food inflation reached a 15-month high of 10.87% in October 2024. In 2023, savings by households dipped to a 50-year low.

2. Make the GDP grow: The Reserve Bank of India reduced GDP growth estimates from 7.2% to 6.6% in December 2024. The repo rate was not cut for eleven consecutive terms.

3. Attract foreign investment: 13 thousand crore (1.6 billion USD) worth of foreign direct investment has decreased between 2022-23 and 2023-24.

4. Make the rupee strong: In December 2024, the rupee stayed weak for the third straight session and settled at an all-time low of 85.27 against the US dollar.

5. Generate employment: Youth unemployment rate has been at 10% for the last two years. As per the Economic Survey, half of all individuals are not ready to be employed after graduating from college.

6. Favour the common man: In the last four years, Rs 5.65 lakh crore has been written off for the industrial sector. Agriculture, the largest employer in the country, received the least attention in terms of loan write-offs among all sectors from Scheduled Commercial Banks.

7. Provide food for all: Annually, 17 lakh Indians die from diseases related to insufficient food intake.

8. Ensure equal wages for all: Annual growth rate of real wages over the last decade has been close to zero at the all-India level. Rural real wages for the last five years have declined at 0.4% and agricultural wages have become stagnant at 0.2%. Four out of five people earn less than Rs 515 as of 2021.

9. Ensure dignity of life for farmers: As per the NCRB, 30 farmers commit suicide every day. Since February 2024, 22 farmers have lost their lives and over 160 have been injured while protesting for a legal guarantee for MSP.

10. Enable safety for women: Section 63 of the Bharatiya Nyaya Sanhita deals with the offence of rape but provides an exception for marital rape, stating that “sexual intercourse or sexual acts by a man with his own wife, the wife not being under eighteen years of age, is not rape”.

11. Ensure dignity for the marginalised: Between 2018 and 2020, 443 people died cleaning sewers and septic tanks. Manual scavenging was banned in 2013.

12. Protect the press: Between 2014 and 2019, there were 200 serious attacks on journalists, along with arrests and interrogations. At least 194 journalists were targeted by government agencies, non-state political actors, criminals, and armed opposition groups in 2022 alone.

13. Ensure equitable representation: The representation of women in the 18th Lok Sabha is merely 13.6%. This is even less than the 17th Lok Sabha, which had 14.4% women. Only two out of 24 Parliamentary Standing Committees are chaired by women.

14. Allow legislative scrutiny: Since 2019, over 100 bills have been passed in less than two hours. In the 17th Lok Sabha, nine out of 10 bills introduced in Parliament have been marked by zero or incomplete consultations.

15. Select the Deputy Speaker of Lok Sabha: The 17th Lok Sabha did not have a Deputy Speaker for its entire five-year term. The office of the Deputy Speaker continues to remain vacant even in the 18th Lok Sabha.

16. Allow criticism: The number of opposition MPs who have been suspended in the last five years has increased 13-fold. As many as 95% cases by the Enforcement Directorate in the last ten years have been filed against those from the Opposition.

17. Respect institutions: The National Commission for Backward Classes, the National Commission for Scheduled Castes, and the National Commission for Protection of Child Rights do not have a Vice-Chairperson.

18. Support Scheduled Tribes, Scheduled Castes & Other Backward Classes: As of March 2024, one out of 10 Kasturba Gandhi Balika Vidyalayas (KGBV) were not functional. Two out of five Eklavya schools were not functional as of July 2024.

19. Complete timelines: The 2021 Census has still not been conducted. This makes it the first Census to be delayed between 1887 and 2011.

20. Utilise funds better: As much as 80% of the Beti Bachao Beti Padhao’s total fund was spent on media advocacy, not for interventions on health or education.

21. Release dues owed to states: The government owes Rs 1,500 Crore under MGNREGS and Awas Yojana to West Bengal. The non-payment of the funds has directly affected the livelihood of 59 lakh MGNREGS workers.

22. Care about Manipur: The violence in Manipur has continued for more than a year, causing the displacement of 67,000 people, of which 14,000 are school-going students. The Prime Minister is yet to visit the state.

23. Safeguard minorities and their welfare: The NCRB recorded 378 instances of communal violence in 2021 and 272 such instances in 2022. In 2023, India witnessed 668 documented hate speech incidents against one community alone. One hundred and twenty-eight properties were demolished between April and June 2022, following communal violence and protests.

24. Build secure public infrastructure: There were 244 train accidents between 2017 and 2022. As many as 135 people died when a suspension bridge collapsed in Morbi. Fourty-one workers were trapped for 17 days after the Uttarkashi Tunnel caved in.

25. Enable a safer internet: Frauds relating to “digital arrests” in the first nine months of 2024 amounted to losses worth Rs 1616 crore. The Digital Data Protection Rules have not been notified despite the Act being passed over a year ago.

(Research credit: Varnika Mishra)

(Derek O’Brien, MP, leads the Trinamool Congress in the Rajya Sabha)

Disclaimer: These are the personal opinions of the author

In November, a Cabinet Minister reportedly stated at a press conference that the Reserve Bank of India (RBI) should focus on growth and not be concerned with food price inflation. Though the Minister clarified that he was speaking in his personal capacity, it is not in the spirit of things that once the central bank has been given a mandate to target an inflation index that includes the price of food, a member of the executive advises it in any way, leave alone exhorts it to target something else. The comment perhaps reflects some nervousness, on behalf of the government, about the performance of the economy. This would not be unfounded. The media has made references to declining consumption expenditure in the economy, though it is not evident in the national income statistics, available up to 2022-23. But there have been reports of the slow growth of sales of companies in the fast-moving-consumer-goods (FMCG) segment during the current financial year. This is a fairly reliable source of information on consumption growth. There is, however, a more overarching reason why the government would be concerned about growth in the economy, which is based on a longer view.

Not a comforting story

We now have national income data for a decade since 2014, enabling a broad evaluation of economic performance during the tenure of the Modi government. First, at the aggregate level, the average annual growth of the economy is lower since 2016-17. The decline is substantial too. At 7.1% for the period 2004-05 to 2015-16 and 5.2% for the period 2016-17 to 2023-24, it amounts to 27%. National income data for the sectors is less up to date but extends enough to make a confident assessment, and it would be as follows. Of the 11 sectors at the initial level of disaggregation, only one, namely ‘Real Estate’, shows a higher growth rate since 2014. Interestingly, for all of the policy focus on manufacturing, this sector actually slowed after 2014. Having grown at well over 7% per annum from 2006-07 to 2014-15, its growth slowed to just over 5% afterwards. This extent of decline in the rate of growth of manufacturing across successive growth phases is by far the highest since Independence while the percentage increase in the rate of growth of the real estate sector since 2014 is not the highest, having been exceeded in the 1980s. This would not be a comforting story for any government that takes pride in its growth performance.

While the government is vocal on growth, it remains silent on inflation. This is telling, as the October print for inflation shows that it breached the 6% mark, the upper tolerance level granted to the RBI, while food-price inflation breached the 10% mark. There is an assumption, commonly held by a section of the economics profession that was voiced by the Minister when he encouraged the RBI to ignore food price inflation. It is that the price of food is volatile, and its fluctuations cancel themselves out over time.

A structural problem

This, however, has been proven to be wrong, at least in India. Food inflation rose in 2019-20 and has remained elevated since. That it rose before the COVID-19 pandemic and has persisted even as growth has recovered gives us an idea of why the assumption is wrong. Recent inflation in India is not related to some temporary supply-chain disruptions, as, for instance, in the United States, where it has declined considerably post pandemic even as growth has recovered. Inflation in India is a structural problem reflecting the type of growth it is experiencing, one in which agricultural production is not expanding at the rate at which the demand for its products is rising. Further, and relevant in the context, food price inflation triggers a wage price spiral in the rest of the economy, which can continue for a while even if food prices decline.

The implication for welfare of the inflation we are currently experiencing is obvious. High inflation, especially of food products, adversely affects the well-being of those whose income does not keep pace with the inflation. The growth impact is less obvious, but surely is there. As household budgets are stretched to accommodate the higher cost of food, the demand for other goods and services must grow less fast. Non-agricultural output and employment growth now slows down. A mechanism of this kind is likely to have played a role in lowering the rate of growth of manufacturing production in recent years. From the data in the Ministry of Statistics and Programme Implementation’s ‘National Accounts Statistics 2024’, we can see a correlation between the rise in food price inflation from 2019-20 onwards and manufacturing growth since, with the annual rate of change of the latter actually negative in two out of the five years since. So, while the Minister is right to suggest that the RBI’s capacity to rein in food inflation is weak, he is wrong to suggest that food price inflation need not be controlled. If food price inflation were to be taken out of the RBI’s brief without an alternative proposal for its control, India would be left bereft of an anti-inflation policy. Uncontrolled inflation can throw sand in the wheels of growth itself.

Presently, the problem facing India’s economy is not the lack of growth. The provisional estimate for GDP growth in 2023-24 (over 8%) is quite high by historical standards. The problem lies in its inequitable distribution across the population, partly induced by food price inflation. The Minister’s observation should induce the government to re-focus current economic policy from growth to inflation.

Pulapre Balakrishnan, Honorary Visiting Professor, Centre for Development Studies, Thiruvananthapuram

The Federal Reserve cut its key interest rate by a quarter-point. File.
| Photo Credit: AP

The Federal Reserve cut its key interest rate on Wednesday by a quarter-point — its third cut this year — but also signaled that it expects to reduce rates more slowly next year than it previously envisioned, largely because of still-elevated inflation.

The Fed’s 19 policymakers projected that they will cut their benchmark rate by a quarter-point just twice in 2025, down from their previous estimate in September of four rate cuts. Their new quarterly projections suggest that consumers may not enjoy much lower rates next year for mortgages, auto loans, credit cards and other forms of borrowing.

Fed officials have underscored that they are slowing their rate reductions as their benchmark rate nears a level that policymakers refer to as “neutral” — the level that is thought to neither spur nor hinder the economy. Wednesday’s projections suggest that policymakers may think they are not very far from that level. Their benchmark rate stands at 4.3% after Wednesday’s move, which followed a steep half-point reduction in September and quarter-point cut last month.

This year’s Fed rate reductions have marked a reversal after more than two years of high rates, which largely helped tame inflation but also made borrowing painfully expensive for American consumers.

But now, the Fed is facing a variety of challenges as it seeks to complete a “soft landing” for the economy, whereby high rates manage to curb inflation without causing a recession. Chief among them is that inflation remains sticky: According to the Fed’s preferred gauge, annual inflation was 2.8% in October, the same as in March and still persistently above the central bank’s 2% target.

At the same time, the economy is growing briskly, which suggests that higher rates haven’t much restrained the economy. As a result, some economists — and some Fed officials — have argued that borrowing rates shouldn’t be reduced much more for fear of overheating the economy and re-igniting inflation. On the other hand, the pace of hiring has cooled significantly since 2024 began, a potential worry because one of the Fed’s mandates is to achieve maximum employment.

The unemployment rate, while still low at 4.2%, has risen nearly a full percentage point in the past two years. Concern over rising unemployment contributed to the Fed’s decision in September to cut its key rate by a larger-than-usual half point.

On top of that, President-elect Donald Trump has proposed a range of tax cuts — on Social Security benefits, tipped income and overtime income — as well as a scaling-back of regulations. Collectively, these moves could stimulate growth. At the same time, Trump has threatened to impose a variety of tariffs and to seek mass deportations of migrants, which could accelerate inflation.

Chair Jerome Powell and other Fed officials have said they won’t be able to assess how Trump’s policies might affect the economy or their own rate decisions until more details are made available and it becomes clearer how likely it is that the president-elect’s proposals will actually be enacted. Until then, the outcome of the presidential election has mostly heightened the uncertainty surrounding the economy.

“I’ve got the least amount of conviction about what will happen with the economy over the next 12 months than I’ve had in years,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale. “This is going to be a work in progress as things evolve.”

Such uncertainty was underscored by the quarterly economic projections the Fed issued Wednesday. The policymakers now expect annual inflation, as measured by their preferred gauge, to rise slightly from 2.3% now to 2.5% by the end of 2025. Inflation by their measure is now far below its peak of 7.2% in June 2022. Even so, the prospect of slightly higher inflation makes it harder for the Fed to reduce borrowing costs because high interest rates are its principal weapon against inflation.

The officials also expect the unemployment rate to inch up by the end of next year, from 4.2% now to a still-low 4.3%. That slight increase might not be enough, by itself, to justify many more rate cuts.

Most other central banks around the world are also cutting their benchmark rates. Last week, the European Central Bank lowered its key rate for the fourth time this year to 3% from 3.25%, as inflation in the 20 countries that use the euro has fallen to 2.3% from a peak of 10.6% in late 2022. The Bank of Canada also cut its rate by a quarter-point last week, as did the Bank of England last month.

Beth Hammack, president of the Federal Reserve Bank of Cleveland, dissented from Wednesday’s Fed decision because she preferred to keep rates unchanged. It was the first dissent by a Fed committee member since September.