- India's retail inflation rate dropped to 5.48% in November, primarily due to easing food prices.
- The Reserve Bank of India (RBI) has cut the cash reserve ratio (CRR) for banks by 0.5% to stimulate economic growth.
- Despite this, the key policy repo rate remains at 6.5%, reflecting the RBI's cautious approach to inflation.
- The decline in inflation and the RBI's actions are positive for the economy, but maintaining a balance between controlling inflation and promoting growth remains crucial.
India's retail inflation rate, based on the Consumer Price Index (CPI), has seen a significant decline to 5.48% in November. This decrease is primarily due to the easing of food item prices, providing a much-needed relief to household budgets across the country. The Ministry of Statistics confirmed this trend, marking a reversal from the increasing inflation trend observed in the previous two months. In October, the inflation rate had touched a high of 6.21%.
The decline in inflation has been observed across various sectors. Vegetables, pulses, sugar and confectionery, fruits, eggs, milk and products, spices, transport and communication, and personal care and effects subgroups have all seen a significant decrease in inflation during November. However, certain items have shown the highest year-on-year inflation at the all-India level in November. These include garlic (85.14), potato (66.65), cauliflower (47.70), cabbage (43.58), and coconut oil (42.13).
On the other hand, items with the lowest year-on-year inflation in November 2024 include zeera (-35.04), ginger (-16.96), LPG used as cooking gas (-10.24), and dry chillies (-9.73). This easing in inflation is a welcome sign, especially considering that the rate of retail inflation had crossed the Reserve Bank of India's (RBI) upper limit of 6% in October.
RBI's Measures to Propel Economic Growth
In a move to spur economic growth, the RBI slashed the cash reserve ratio (CRR) for banks by 0.5% on Friday. This reduction, from 4.5% to 4%, will infuse Rs 1.16 lakh crore into the banking system and bring down market interest rates. However, the key policy repo rate remains unchanged at 6.5%, indicating the RBI's cautious approach towards inflation.
The monetary policy decision maintains a delicate balance between controlling inflation and pushing up the growth rate in a slowing economy. Former RBI Governor Shaktikanta Das, in his last monetary policy view, stated that India's growth story is still intact. He observed that inflation is on the declining path, but significant risks in the outlook cannot be overlooked or underestimated. He was optimistic about the economy's outlook, noting that the balance between inflation and growth is well poised.
Global Trends and Their Impact on the Indian Economy
The RBI's actions are in line with global trends. For instance, the US Federal Reserve is expected to reduce the benchmark policy rate for the first time in four years. This decision is likely to provide a temporary boost to the Indian market due to improved global risk sentiment, potentially strengthening the Indian rupee and attracting foreign investment to India.
The easing of food item prices has provided relief to household budgets, and the RBI's decision to slash the CRR for banks is expected to spur economic growth. However, the RBI's cautious approach towards inflation, as indicated by the unchanged key policy repo rate, underscores the need for a delicate balance between controlling inflation and promoting growth. As the economy continues to navigate these challenges, the focus will remain on maintaining this balance to ensure sustainable economic growth.
