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Discussion on the first no-confidence motion of the 17th Lok Sabha began today. No-confidence motions and confidence motions are trust votes, used to test or demonstrate the support of Lok Sabha for the government in power. Article 75(3) of the Constitution states that the government is collectively responsible to Lok Sabha. This means that the government must always enjoy the support of a majority of the members of Lok Sabha. Trust votes are used to examine this support. The government resigns if a majority of members support a no-confidence motion, or reject a confidence motion.
So far, 28 no-confidence motions (including the one being discussed today) and 11 confidence motions have been discussed. Over the years, the number of such motions has reduced. The mid-1960s and mid-1970s saw more no-confidence motions, whereas the 1990s saw more confidence motions.
Figure 1: Trust votes in Parliament
Note: *Term shorter than 5 years; **6-year term.
Source: Statistical Handbook 2021, Ministry of Parliamentary Affairs; PRS.
The no-confidence motion being discussed today was moved on July 26, 2023. A motion of no-confidence is moved with the support of at least 50 members. The Speaker has the discretion to allot time for discussion of the motion. The Rules of Procedure state that the motion must be discussed within 10 days of being introduced. This year, the no-confidence motion was discussed 13 calendar days after introduction. Since the introduction of the no-confidence motion on July 26, 12 Bills have been introduced and 18 Bills have been passed by Lok Sabha. In the past, on four occasions, the discussion on no-confidence motions began seven days after their introduction. On these occasions, Bills and other important issues were debated before the discussion on the no-confidence motion began.
Figure 2: Members rise in support of the motion of no-confidence in Lok Sabha
Source: Sansad TV, Lok Sabha, July 26, 2023; PRS.
Figure 3: Number of days from introduction to discussion on no-confidence motions
Note: Number of days implies calendar days.
Source: Statistical Handbook 2021, Ministry of Parliamentary Affairs; PRS.
On average, no-confidence motions (excluding the one being discussed today) have been discussed for 13 hours over three days. Discussions have lasted longer than 20 hours on four instances, most recently in 2003. Today’s no-confidence motion was allotted 12 hours discussion time by the Business Advisory Committee.
Following the discussion, the motion is put to vote. 26 out of 27 no-confidence motions (excluding the one being discussed today) have been voted upon and rejected. This means that no government has ever had to resign following a vote of no-confidence. On one occasion, in 1979, the discussion on a no-confidence motion against the Morarji Desai government remained inconclusive. He resigned before the motion was put to vote. 50% of all no-confidence motions (14 out of 28) were discussed between 1965 and 1975. Of these, 12 were against governments headed by Indira Gandhi.
Figure 4: Duration of discussion on no-confidence motions
Note: This graph excludes the no confidence motion moved on July 26, 2023.
Source: Statistical Handbook 2021, Ministry of Parliamentary Affairs; PRS.
In comparison, confidence motions have a more varied history. The first motion, brought in 1979 to demonstrate confidence in Charan Singh’s government, was not discussed at all. The Prime Minister resigned before the discussion could take place. Since then, 11 confidence motions have been discussed in Lok Sabha, with nine occurring in the 1990s. During this period, several coalition governments were formed, and Prime Ministers sought to prove their majority through confidence motions. These motions have been discussed, on average, for 12 hours over two days.
Figure 5: Duration of discussion of confidence motions
Source: Statistical Handbook 2021, Ministry of Parliamentary Affairs; PRS.
Of the 11 confidence motions discussed in Lok Sabha, seven were accepted. On three instances, governments had to resign as they could not prove that they had the support of the majority. On one instance in 1996, the motion was not put to vote. Following an eleven-hour discussion on this confidence motion, Prime Minister Atal Bihari Vajpayee announced his intention to resign on the floor of the House. He resigned 16 days into his term.
Vajpayee became Prime Minister again in 1999, and faced another confidence motion. This time, it was put to vote. The motion was defeated by a margin of one vote. This has been the closest result on a trust vote in the history of Lok Sabha. The next closest result was when a motion of no-confidence against P V Narasimha Rao’s government was defeated by 14 votes in 1993. In most cases, results have been in favour of the government by a large margin.
The Monetary Policy Committee (MPC) has decided to conduct an off-cycle meeting today to discuss the failure to meet the inflation target under Section 45ZN of the Reserve Bank of India Act, 1934. As per the Reserve Bank of India Act (RBI), 1934, MPC is required to meet at least four times each year, to discuss the macroeconomic issues in the country, and take policy decisions to address those. This is the second time MPC has conducted an off-cycle meeting in 2022-23. The meeting is scheduled in light of inflation being consistently high for nine consecutive months.
In this blog, we discuss what the inflation targeting framework is, examine retail and wholesale prices, and the divergence between them.
What is the inflation targeting framework, and what happens if inflation is persistently high?
In 2016, Parliament amended the RBI Act, 1934 to change the monetary policy, and introduce an inflation targeting framework. This framework prioritises price stability to achieve sustainable GDP growth. Price stability allows investors to confidently invest their money for productive activities, without worrying about it losing value. Price stability also maintains the purchasing power of consumers, i.e., the ability to purchase a good (or service) with a given amount of money.
As per the new framework, the central government, in consultation with RBI sets: (i) an inflation target, and (ii) an upper and lower tolerance level for retail inflation. The target has been set at 4%, with an upper tolerance limit of 6% and a lower tolerance limit of 2%. The upper and lower limits indicate that although it is desirable for inflation to be close to 4%, deviation between these limits is acceptable. The target and bands are revised every five years. In March 2021, the existing targets were carried forward.
Retail inflation has been above 6% for the past nine months, and it has been above 4% from October 2019 onwards (See Figure 1).
Figure 1: Consumer price index (year-on-year; in percentage)
Sources: Database on Indian Economy, Reserve Bank of India; PRS.
If inflation is above or below the prescribed limits for three quarters, RBI must submit a report to the central government explaining why prices have been rising (or falling) persistently, what will be done to correct that, and an estimate as to when the target will be achieved.
The MPC uses tools such as interest rates to control the level of inflation in the economy. One such rate is the policy repo rate, which is the rate at which RBI lends money to banks. An increase in the policy repo rate makes borrowing money more costly, and hence is expected to control inflation by reducing the money supply. MPC increased this rate from 4% in April 2022 to 4.4% in May 2022, to 4.9% in June 2022, to 5.4% in August 2022, and to 5.9% in September 2022.
Breaking down the Consumer Price Index and the Wholesale Price Index
Consumer Price Index (CPI) measures the general prices of goods and services such as food, clothing, and fuel over time. Retail inflation is calculated as the change in the CPI over a period of time. Goods and services such as petrol, food products, health, and education are considered for its calculation, which are assigned different weights (See Table 1). Between February 2022 and August 2022, the average annual inflation was 6.9%. The rise in prices of subcomponents of the CPI during this period is indicated in Table 2.
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Table 1: Assigned weights for the calculation of CPI
Sources: MOSPI; PRS. |
Table 2: Average inflation of some CPI components
Sources: Database on Indian Economy, RBI; PRS. |
CPI is not the only index that measures inflation in an economy. The Wholesale Price Index (WPI) measures the wholesale prices of goods. A change in wholesale prices reflects wholesale inflation. Table 3 indicates the weights assigned to goods for calculating the WPI. Manufactured goods include metals, chemicals, food products, and textiles.
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Primary articles (23%) include food articles, and crude petroleum and natural gas. Fuel and power (12%) include mineral oils, electricity, and coal. WPI has remained above 10% from April 2021 onwards. It reached an all-time high of 17% in May 2022. This was driven by the inflation in metals, kerosene and petroleum coke, fruits and vegetables, and palm oil. |
Table 3:Assigned weights for the
Sources: Ministry of Commerce and Industry; PRS. |
Why has WPI inflation been consistently above CPI inflation?
Movements in the WPI have an impact on the CPI. For almost a year and half, CPI inflation has remained below WPI inflation. However, as per the design of the indices, it is expected that CPI would remain above WPI, and that any increase in WPI would reflect in the CPI after a time lag. This is because retail prices include taxes (as a percentage of price), while wholesale prices do not. Additionally, some of the goods in WPI act as inputs in the goods considered in CPI. An increase in input prices would lead to higher retail prices after a time lag.
We discuss possible reasons for why CPI has remained below WPI for a year and a half.
Figure 2: Consumer Price Index and Wholesale Price Index
Sources: Database on Indian Economy, Reserve Bank of India; PRS.
Composition of indices
As indicated in Table 2 and 3, the composition of the two indices varies. For instance, prices of manufacture of basic metals, chemicals, and machinery grew at an average rate of 13% between February 2021 and September 2022. They contribute 7% to the WPI. These are input goods for producing final goods and services such as automobiles, which are included in the CPI. The rise in prices of transport vehicles, communication devices, fuel for transport, and housing (CPI components) rose by 6% during this period.
The Ministry of Finance has observed that wholesale prices did not feed into retail prices (from March 2021 onwards) as wholesalers absorbed the rising input costs and did not pass them on to retailers. In August 2022, it noted that as retail prices are rising now, the pass-through may occur.
