Humble tomato has challenged the mighty RBI

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Humble tomato has challenged the mighty RBI

  • Recently, In June 2022, consumer price index (CPI) inflation was at 7.01% , and wholesale price index (WPI) inflation was at 15.18%.
  • It is crossing the set-up target for RBI to control inflation within the bandwidth of 4+/-2% range (CPI).

A comparative study of WPI and CPI:

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Role and Responsibilities of RBI in controlling in the Inflation:

  • Under the Reserve Bank of India, Act, 1934 (RBI Act,1934) (as amended in 2016, 2021), RBI is entrusted with the responsibility of conducting monetary policy in India with the primary objective of maintaining price stability (Inflation) while keeping in mind the objective of growth.

What is the Inflation target?

  • Under Section 45ZA of RBI act 1934 , the Central Government, in consultation with the RBI, determines the inflation target in terms of the Consumer Price Index (CPI), once in five years and notifies it in the Official Gazette
  • Under which Central Government notified in the Official Gazette 4% Consumer Price Index (CPI) inflation as the target for the period from August 2016 to March 2021 with the upper tolerance limit of 6% and the lower tolerance limit of 2%.
  • Section 45ZB of the RBI Act provides for the constitution of a six-member Monetary Policy Committee (MPC) (which is headed by RBI governor) determine the policy rate required to achieve the inflation target.
  • Therefore, Inflation target is set by central government and it is maintained by RBI through monetary policy tools.

Way forward:

  • Monetary policy alone may not be as effective in the Indian case. Therefore, is need to revise its CPI basket with the latest consumption survey weights.
  • There is requirement to improve the supply side by increasing the production of basket of commodities, effective and efficient utilization of resources, better setup of supply chain management along with logistic support which will help in reducing the wastage of crops.
  • Schemes like Operation Greens: From TOP to TOTAL need to be further improvised for their timely intervention when there is rapid rise in price of crops which will help in price stabilization for producers and consumers.