The Budget session 2013 commenced with the President, Pranab Mukherjee, addressing Parliament on February 21, 2013. The address is a statement of the policy of the government. Yesterday a Motion of Thanks was moved in the Lok Sabha and a detailed discussion took place on the President’s address. (The significance of the President’s speech has been discussed in an article published in the Indian Express.) Below are some legislative and policy items from the agenda of the central government outlined in the speech.
Legislative and policyagenda outlined in President’s addresses between 2009-2012 and their status
Legislations mentioned in the President’s Address between 2009-12
|To be introduced|
|Goods and Services Tax||Constitutional Amendment Bill introduced|
|The National Food Security Bill||Introduced|
|Amend the Land Acquisition Act and enact the Rehabilitation and Resettlement Bill||Introduced|
|Sexual Harassment of Women at Workplace (Prevention Prohibition and Redressal) Bill||Passed|
|The Whistleblower Bill||Pending|
|The Judicial Standards and Accountability Bill||Pending|
|The Lokpal and Lokayuktas Bill||Pending|
|A model Public Services Law (to cover officials providing important social services and commits them to their duties)||Two bills introduced: the Electronic Services Delivery Bill and the Citizen’s Charter Bill|
|The Right to Free and Compulsory Education Bill||Passed|
|The National Council for Higher Education Bill||Introduced|
|Foreign Educational Institutions Bill||Introduced|
|Protection of Children from Sexual Offences Bill||Passed|
|The Women’s Reservation Bill||Pending|
|The Mines and Minerals (Development and Regulation) Bill||Introduced|
|The Public Procurement Bill||Introduced|
|The General Anti-Avoidance Rules||Scheduled for 2016|
|Amend of RTI Act (to provide for disclosure by government in all non-strategic areas)||To be introduced|
Policy items mentioned in the President’s Addresses between 2009-2012
|National Mission for Female Literacy – all women to be literate by 2013-14||National Literacy Mission recast in September 2009 to focus on female literacy; as per 2011 census the female literacy rate in India is 65.46%|
|Disposal of remaining claims in 2010 under the Scheduled Tribes and Other Traditional Forest Dwellers Act||As on February 28, 2010, 27.16 lakh claims had been filed, 7.59 lakh titles had been distributed and 36,000 titles were ready for distribution; as on July 31, 2012, the number of claims filed for the recognition of forest rights and titles distributed are 32.28 lakh and 12.68 lakh respectively|
|Introduction of Minimum Support Price (MSP) for Minor Forest Produce (MFP) being considered||Based on the recommendations of the Committee constituted by Ministry of Panchayati Raj to look into aspects of MSP, Value addition and marketing of MFP in Fifth Schedule Areas, a Central Sector Scheme of MSP for MFP has been contemplated|
|Voting rights for Indian citizens living abroad||Bill passed; NRIs can vote at the place of residence mentioned in their passport|
|12th Plan target growth 9% with 4% growth for the agricultural sector||GDP grew by 5.4% and the agriculture sector by 1.8% in the first half of the current fiscal year (2012-13)|
|Establish national investment and manufacturing zones to promote growth in manufacturing||Under the National Manufacturing Policy, 12 National Investment and Manufacturing Zones are notified, 8 of them along the Delhi Mumbai Industrial Corridor and 4 others at Nagpur, Tumkur, Chittor and Medak|
|Strengthening public accountability of flagship programmes by the creation of an Independent Evaluation Office.||Government has approved setting up of an Independent Evaluation Office and the Governing Board will be chaired by Deputy Chairman, Planning Commission|
|Unique Identity Card scheme to be implemented by 2011-12||Bill to give statutory status pending in Parliament; enrollment until February 2013 is approximately 28 crore|
|Establishment of National Counter-Terrorism Centre||Proposed launch of NCTC in March 2011 on hold as consultation with states is on; meeting held by the union government with the Chief Ministers of all the States in May 2012|
|Conversion of analog cable TV system to digital by December 2014||Government has implemented the first phase of digitization in Kolkata, Delhi, Chennai and Mumbai; by March 31, 2013, 38 cities with a population of more than one million will be covered|
|A roadmap for judicial reform to be outlined by the end of 2009 and implemented in a time-bound manner||Vision statement formulated in 2009 outlining road map for improving justice delivery and legal reforms and steps to reduce pendency in Courts; setting up of a National Mission for the Delivery of Justice and Legal Reforms to improve court administration and reduce pendency was approved in June 2011|
*Introduced means introduced in one House; Pending means passed by one House and pending in the other House; Passed means passed by both Houses of Parliament.
 “Major Recommendations of Expert Committee on GAAR Accepted”, Press Information Bureau, Ministry of Finance, January 14, 2013.
 Lok Sabha, Starred Question No. 175, December 5, 2012, Ministry of Human Resource Development.
 Lok Sabha, Unstarred Question No. 2672, March 12, 2010, Ministry of Tribal Affairs.
 Lok Sabha, Starred Question No. 108, August 17, 2012, Ministry of Tribal Affairs.
 “PM approves Constitution of National Council for Senior Citizens”, Press Information Bureau, February 1, 2012, Prime Minister’s Office.
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.
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.
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.