The Hindu: Published on 23rd Dec 2024:
Why in News?
The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) released the minutes of its latest meeting, highlighting the slow growth and high inflation scenario in India.
Focus on the need for a balanced approach to tackle inflation driven by food prices and slow economic growth.
Discussion on monetary policy direction and the possibility of a rate cut.
Slow Growth and High Inflation Scenario:
India is currently grappling with slow economic growth combined with high inflation, particularly due to elevated food prices.
Core inflation persistence has shown signs of easing, but food price inflation remains a major concern.
Monetary policy faces challenges as it primarily addresses demand-side issues, while food inflation stems from supply-side disruptions.
External factors like weak global demand are also weighing on exports, further affecting growth.
Main Reasons for the Current Situation:
Food Inflation:
High food prices, especially vegetables and edible oils, which form a significant part of the Consumer Price Index (CPI).
Seasonal supply-demand mismatches exacerbated inflation.
Core Inflation Trends:
Gradual decline in core inflation persistence suggests better anchoring of inflation expectations.
Global Factors:
Challenging international trade environment has constrained exports.
Demand-Side Issues:
Private consumption and investment have remained weak due to subdued domestic demand.
Policies to Address the Challenges:
Monetary Policy Measures:
Advocated rate cuts to support economic growth and provide impetus to domestic demand.
Emphasis on waiting for durable reduction in inflation before making policy shifts to avoid dissipating gains made in disinflation.
Supply-Side Interventions:
Managing food supply chain issues to address seasonal spikes in vegetable prices.
Private Investment Revival:
Encouraging private sector investments through policy measures to stimulate domestic demand.
Global Integration:
Aligning monetary policies with international scenarios to support growth amid global uncertainties.
Conclusion:
While inflation remains elevated, it is projected to ease in the last quarter of FY25 as food prices stabilize.
A balanced approach prioritizing both inflation control and growth revival is critical.
Restoring the inflation-growth balance is necessary to create a favorable environment for private investment and sustained economic recovery.
Structural reforms, alongside demand and supply-side policies, are needed to address underlying issues and ensure long-term stability.
This summary provides a structured analysis of the article while outlining key takeaways for policymakers and stakeholders.
