On January 17, 2020, the Ministry of Health and Family Welfare acknowledged the emergence of COVID-19 that was spreading across China. On January 30, 2020, the country’s first COVID-19 positive case was reported in Kerala.  By March 11, 2020, the World Health Organisation declared COVID-19 as a global pandemic.  This blog summarises the key policy measures taken by government of Kerala to respond to the pandemic.  

As on April 22, Kerala has had 427 confirmed cases of COVID-19, of which 307 have recovered (highest rate of recovery in the country). Only three deaths have been recorded in the state so far.

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Pre-lockdown period: Early measures for containment

Following the first confirmed case involving a returnee from Wuhan, China, the initial responses by the state were aimed at surveilling, identifying, and conducting risk-based categorisation of all passenger arrivals from China and others who had come in close contact with these travellers. As two more cases were confirmed on February 2 and 3, the state government declared a health emergency in the state. 

Subsequently, a health advisory was issued to track, identify, and test all travellers with a travel history to Wuhan since January 15, 2020.  Such passengers and their close contacts were to be kept in isolation for 28 days.  The advisory also directed all lodging establishments to maintain a register of travellers with travel histories to corona-affected countries. A similar advisory was issued for student returnees as well. With no further confirmed cases being reported immediately, on February 12, the state withdrew the health emergency.  However, a high state of response and surveillance continued to be applied.

Second wave of infections

When a second wave of infections began spreading in early March, the government took several multi-pronged measures to address the threat. The following measures were taken in this regard:

  • Health measures: Revised guidelines for the clinical management of COVID19 patients, covering testing, quarantine, hospital admission, and discharge, were issued.  
     
  • Instructions were issued regarding airport safety protocols as well as testing of foreign nationals entering and exiting the state. All foreign arrivals, even if asymptomatic, were to be kept in isolation until their test reports were available. 
     
  • Further guidelines and precautions on social distancing and various hygiene norms, such as, use of sanitsers, were also issued to malls, shopping centres, and salons
     
  • Movement restrictions: All non-medical educational institutions, including anganwadis and madrassas were immediately shut down till March 31 and exams of classes 1-7 were postponed. Exams for classes 8 and above were to be held as scheduled. University exams were also postponed till March 31.
     
  • Government departments were asked to make temporary arrangements regarding working hours of their employees. Officials were also instructed to look into welfare measures for migrant workers.
     
  • Guidelines were also issued to private establishments regarding working time, safety measures, and leave for employees.
     
  • Administrative Measures: On March 17, COVID19 was declared a notified disaster, thus becoming eligible for funds from the State Disaster Response Fund (SDRF). SDRF is the primary fund available with state governments for responses to notified disasters. Notifying a disaster enables states to spend more from the SDRF to fight the said disaster.
     
  • In order to better coordinate the state’s response, the government issued instructions to constitute COVID-19 cells in all departments. Meetings and inspections by government officials were also to be avoided. 
     
  • Local Self Government institutions were assigned various roles and responsibilities. These include: (i) running awareness programs, such as, ‘Break the Chain’ initiative, (ii) conducting sanitation and cleanliness drives, (iii) regular outreach to home isolated/quarantined persons, (iv) activating committee system to manage responsibilities, (v) ensuring availability of essential commodities, (vi) categorising and ensuring available response mechanisms, such as, material resources, volunteers, medical resources etc, and (vii) ensuring special attention to vulnerable populations, such as senior citizens, and persons with co-morbidities or undergoing special treatments. 

The lockdown period

On March 23, Kerala announced a state-wide lockdown till March 31.  A day later, the central government announced a nation-wide 21-day lockdown.  

Restrictions imposed under the state’s order included: (i) stoppage of all forms of passenger transport services, (ii) prohibition of a gathering of more than five persons, and (iii) closure of all commercial establishments, officers, and factories, except those exempted.  Use of taxis, autos or private vehicles was permitted only for procurement of essential commodities or for medical emergencies. Establishments providing essential goods and services such as banks, media, telecom services, petrol bunks, and hospitals were permitted to operate.  

On April 15, the central government extended the lockdown till May 3.  Some of the key measures undertaken during the lockdown period are: 

Administrative Measures

  • A round-the-clock war room, comprising members of different departments, was set up to monitor and supervise all COVID-19 containment activities. 
     
  • Corona media cell was set up to monitor and tackle the threat of fake news surrounding COVID19.  
     
  • With the legislature not in session, the Kerala Epidemic Diseases Ordinance, 2020 was promulgated by the Governor of Kerala on March 26. The Ordinance empowers the state government to undertake necessary measures and specify regulations to counter the threat of an epidemic disease.  It also specifies a penalty for those who violate orders made under this Ordinance. 

Healthcare Measures

Essential Goods and Services

  • On March 25, the state declared a list of essential services under the Kerala Essential Services Maintenance Act, 1994. 
     
  • Various exemptions from lockdown were issued to services that were later deemed essential. These include: (i) shops and bakeries, including departmental stores, (ii) online food deliveries, (iii) parcel services, for delivery of essential goods, (iv) automobile service workshops, (v) shops and service centres for mobile phones, computers etc, only on Sundays, and (vi) plumbers and electricians to undertake maintenance work in houses and flats. 
     
  • On April 3, orders were issued to set up community kitchens under the aegis of Kudumbasree and Local Self Governments (LSGs). Kudumbasree is the poverty eradication and women empowerment programme implemented by the Kerala government. As on April 20, a total of 339 Community Kitchens have been functioning in 249 panchayats across 14 districts of the state. They have served a total of 5,91,687 meals since April 4, 2020. The government has also instructed LSGs to hire volunteers for the kitchen and pay them an honorarium of Rs. 400 (for one-time service) or Rs. 650 (for the whole-day).

Welfare Measures

  • Under SDRF norms, funds were released to the Health Department for relief and response activities for COVID-19. 
     
  • Each District Collector has been allocated Rs. 50 lakh for carrying out various COVID-19 outbreak-related control and prevention activities.
     
  • Financial assistance has been sanctioned to (i) fishermen, (ii) artists, (iii) lottery agents and sellers, and (iii) elephants and other such animals being looked after. 
     
  • A 2000-crore worth Chief Minister’s Helping Hand Loan Scheme was announced for people facing lockdown-related unemployment and hardships. The scheme will be operationalised through neighbourhood groups under the aegis of Kudumbasree. 

Post-lockdown strategies – Strategies easing lockdown relaxations

  • Expert Committee: On April 4, an Expert Committee was constituted by the government and on April 6, the Committee submitted its Report on the guidelines for post-lockdown regulations. It recommended a conditional, three-phase strategy, with districts being the unit of implementation. Relaxations would be progressively eased in each phase depending on criteria, such as, (i) number of new confirmed cases, (ii) percentage increase/decrease in number of persons under home surveillance, and (iii) no emergence of hotspots.. 
     
  • Containment Guidelines: After the lockdown was extended till May 3, the state released revised guidelines for containment, that recommended classification of districts into four zones, based on number of cases and disease threat. The zones – Red, Orange A, Orange B, and Green – would have different, graded restrictions, with Red having stringent restrictions in the form of a lockdown till May 3. The Orange A and B zones would have a lockdown till April 24 and 20 respectively, followed by a partial relaxation thereafter. Green zone would have a lockdown till April 20 and relaxation in restrictions thereafter.
     
  • Based on the above order, the state issued an advisory for industrial units to follow while resuming operations. Some of the Standard Operating Procedures to be followed include: (i) conducting disinfectation of premises, machinery, and vehicles, (ii) arranging exclusive transportation facilities with vehicles operating at 30-40% capacity, (iii) mandatory thermal scanning of people, (iv) following hygiene and social distancing norms, including a cap on elevator capacities and size of meetings (v) mandatory corona-related insurance cover for workers, (vi) mandatory use of CCTVs, and (vii) preparing a list of nearby COVID-19 hospitals .

For more information on the spread of COVID-19 and the central and state government response to the pandemic, please see here.

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)

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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.

Table 1: Assigned weights for the calculation of CPI

Category

Weight

Food and beverages

46%

Miscellaneous (including petrol and diesel, health, and education)

28%

Housing

10%

Clothing and footwear

7%

Fuel and light

7%

Pan, tobacco, and intoxications

2%

Total

100%

Sources: MOSPI; PRS.

Table 2: Average inflation of some CPI components
between February 2022 to August 2022 (in percentage)

Subcategory of CPI

Average inflation

Vegetables 

13.26%

Oils and fats

12.46%

Footwear

11.41%

Fuel and Light

9.88%

Transport and communication

7.74%

Cereals and products

6.05%

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.   

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
calculation of WPI (in percentage)

Category

Weight

Manufactured products

64%

Primary articles

23%

Fuel and power

12%

All commodities

100%

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

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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.