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On March 14, 2022 Rajya Sabha discussed the working of the Ministry of Development of North Eastern Region (DoNER). During the discussion, several issues around budgetary allocation, implementation of schemes and connectivity with the North Eastern Region were discussed. The Ministry of DoNER is responsible for matters relating to the planning, execution and monitoring of development schemes and projects in the North Eastern Region. In this blog post, we analyse the 2022-23 budgetary allocations for the Ministry and discuss related issues.
A new scheme named PM-DevINE announced to boost infrastructure and social development
In 2022-23, the Ministry has seen a 5% increase in allocation from the revised estimates of 2021-22. The Ministry has been allocated Rs 2,800 crore which will be used for various development schemes, such as the North East Special Infrastructure Development Scheme and North East Road Sector Development Scheme. A scheme-wise break-up of the budget allocation for the Ministry is given below in Table 1.
One of the key highlights of the Finance Minister’s Budget Speech was the announcement of a new scheme named the Prime Minister’s Development Initiative for North East (PM-DevINE). It will be implemented through the North East Council (nodal agency for the economic and social development of the North Eastern Region). PM-DevINE will fund infrastructure and social development projects in areas such as road connectivity, health, and agriculture. The scheme will not replace or subsume existing central sector or centrally sponsored schemes. The Scheme will be given an initial allocation of Rs 1,500 crore.
Table 1: Break-up of allocation to the Ministry of DoNER (in Rs crore)
Major Heads |
2020-21 Actuals |
2021-22 BE |
2021-22 RE |
2022-23 BE |
% change from 2021-22 RE to 2022-23 BE |
North East Special Infrastructure Development Scheme |
446 |
675 |
674 |
1,419 |
111% |
Schemes of North East Council |
567 |
585 |
585 |
702 |
20% |
North East Road Sector Development Scheme |
416 |
696 |
674 |
496 |
-26% |
Central pool of resources for North East and Sikkim |
342 |
581 |
581 |
- |
- |
Others |
270 |
322 |
344 |
241 |
-30% |
Total |
1,854 |
2,658 |
2,658 |
2,800 |
5% |
Note: BE – Budget Estimate; RE – Revised Estimate; Schemes for North East Council includes Special Development Projects.
Sources: Demand No. 23 of Union Budget Documents 2022-23; PRS.
Allocation towards capital outlay less than demand
The Standing Committee on Home Affairs (2022) noted that the amount allocated at the budget stage in 2022-23 (Rs 660 crore) was 17% less than the demand by the Ministry (Rs 794 crore). Capital expenditure includes capital outlay which leads to the creation of assets such as schools, hospitals, and roads and bridges. The Committee observed that this may severely affect the implementation of several projects and schemes that require capital outlay. It recommended the Ministry to take up this matter with the Finance Ministry and demand additional assistance at the revised stage of the 2022-23 financial year.
Underutilisation of funds over the years
Since 2011-12 (barring 2016-17), the Ministry has not been able to utilise the funds allocated to it at the budgeted stage (See Figure 1). For instance, in 2020-21, fund utilisation in case of the North East Road Sector Development Scheme was 52%, whereas only 34% of funds were utilised under the North East Special Infrastructure Development Scheme (for infrastructure projects relating to water supply, power, connectivity, social infrastructure). Key reasons for underspending highlighted by the Ministry include late receipt of project proposals and non-receipt of utilisation certificates from state governments.
Figure 1: Underutilisation of funds by the Ministry since 2011-12
Note: Revised Estimate has been used as the Actual Expenditure for 2021-22.
Sources: Union Budget Documents (2011-12 to 2022-23); PRS.
Delay in project completion
The Ministry implements several schemes for infrastructural projects such as roads and bridges. The progress of the certain schemes has been inadequate. The Standing Committee (2022) observed that the physical progress of many road sector projects under the North East Road Sector Development Scheme is either at zero or in single digit percent in spite of release of the amount for the project. Similarly, projects under the Karbi Anglong Autonomous Territorial Council (autonomous district council in Assam) and Social and Infrastructure Development Fund (construction of roads, bridges, and construction of schools and water supply projects in the North Eastern Region) have seen inadequate progress.
Need to address declining forest cover
The Standing Committee (2021) has also recommended the Ministry of DoNER to work towards preserving forest cover. The Committee took note of the declining forest cover in the North East India. As per the India State of Forest Report (2021), states showing major loss of forest cover from 2019 to 2021 are: (i) Arunachal Pradesh (loss of 257 sq km of forest cover), (ii) Manipur (249 sq km), (iii) Nagaland (235 sq km), (iv) Mizoram (186 sq km), and (v) Meghalaya (73 sq km). The loss of forest cover may be attributed to shifting cultivation, cutting down of trees, natural calamities, anthropogenic (environmental pollution) pressure, and developmental activities. The Committee recommended that various measures to protect the forest and environment must be given priority and should implemented within the stipulated timeline. It also suggested the Ministry to: (i) carry out regular plantation drives to increase forest cover/density, and (ii) accord priority towards the ultimate goal of preserving and protecting the forests under various centrally sponsored initiatives.
Key issues raised by Members during discussion in Rajya Sabha
The discussion on the working of the Ministry of DoNER took place in Rajya Sabha on March 14, 2022. One of the issues highlighted by members was about the Ministry not having its own line Department. This leads to the Ministry being dependent on the administrative strength of the states for implementation of projects. Another issue highlighted by several members was the lack of connectivity of the region through railways and road networks which hampers the economic growth of region. The DoNER Minister in his response to the House assured the members that the central government is making continuous efforts towards improving connectivity to the North East region through roads, railways, waterways, and telecommunication.
Allocation by Union Ministries to the North East
Union Ministries allocate 10% of their budget allocation for the North East (See Figure 2 for fund allocation and utilisation). The Ministry of DoNER is the nodal Ministry that monitors and keeps track of the allocation done by various Ministries. In 2022-23, Rs 76,040 crore has been allocated by all the Ministries for the North Eastern region. The allocation has increased by 11% from the revised estimate of 2021-22 (Rs 68,440 crore). In 2019-20 and 2021-21 the actual expenditure towards North Eastern areas was lower than budget estimates by 18% and 19% respectively.
Figure 2: Budgetary allocation by all Union Ministries for the North East (amount in Rs crore)
Source: Report No. 239: Demand for Grants (2022-23) of Ministry of Development of North Eastern Region, Standing Committee on Home Affairs; PRS.
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.