Need debate on whether food can be removed from RBI CPI mandate - Sitharaman
Informist, Tuesday, Oct. 8, 2024
MUMBAI/NEW DELHI – Finance Minister Nirmala Sitharaman Tuesday called for 'a lot of debate' on whether food price inflation can be removed from the Reserve Bank of India's inflation mandate. Currently, the central bank is mandated to keep inflation at 4%, with a band of 2-6%.
Sitharaman's comments come after this year's Economic Survey suggested that the government should rethink its inflation targeting framework to consider focusing on inflation excluding food prices, which are more often supply-induced than demand-induced.
"There is a lot of debate which is required on this (removing food from RBI's mandate) and I wouldn't yet take any position about whether food should be there or if food should not be there," the finance minister said at an event in Mumbai.
Food inflation in India has remained high since the outbreak of the Russia-Ukraine war, and has averaged 7.6% in Apr-Aug this year. Higher food prices have kept the headline CPI inflation above the central bank's medium-term target of 4%. In order to lower headline inflation, the RBI has kept the policy repo rate unchanged at 6.50% since February 2023. RBI Governor Shaktikanta Das on Wednesday will detail the decision of the Monetary Policy Committee's fourth meeting of 2024-25 (Apr-Mar). The MPC is widely expected to leave the repo rate unchanged again on Wednesday.
While Sitharaman did not comment on whether the RBI should focus on non-food inflation, she said that the CPI and WPI baskets should be period-relevant. She also pointed out the lack of common components in CPI and WPI.
"Certainly the CPI basket, and the WPI basket don't seem to have much of a commonness. The WPI basket probably has certain items which need to be in the CPI and the CPI also has some items in the basket which don't have contemporary value as it was once," the finance minister said. "Thoroughly looking at the components in the basket, which after all is finally the instrument with which you are assessing the impact of inflation, will have to be period relevant."
On growth, Sitharaman said that consumption demand is improving in both the rural and urban areas. She also said that she was against freebies that "normal welfare kitty can't sustain". End
