Among the many readings of Verdict 2024 is this one: The outcome, in many parts of the country, may have been shaped by economic issues like berozgari (unemployment) and mehengai (inflation) rising to the surface, and becoming salient. Of the two, the latter may have proved to be more decisive — Indian voters have historically blamed governments for inflation. They might be reconciled to working for low remuneration, but not to price rise significantly eating into their purchasing power. The average annual consumer price index (CPI) inflation in the 12 months from May 2018 leading to the 2019 election was just 3.3 per cent. It was even lower, at 0.03 per cent, for retail food inflation. Benign inflation provided an environment that was conducive to the Narendra Modi government’s return to power by a thumping majority, bigger than in 2014.
It has been different in 2024. Overall CPI inflation has averaged 5.37 per cent year-on-year in the 12 months ended April, way above the Reserve Bank of India’s (RBI) medium-term target of 4 per cent. It’s been higher, at 7.88 per cent, for food inflation and even more in basic foods: Cereals (10.39 per cent), pulses (16.07 per cent) and vegetables (18.33 per cent). The price of roti-dal-sabzi would have arguably weighed much more on the ordinary voter’s mind, than in 2019. The Modi government was, no doubt, alive to the situation, responding through supply-side measures — from allowing imports of major pulses and edible oils at 0-5 per cent duty and banning/restricting exports of wheat, non-basmati rice, sugar and onion to imposing stocking limits in wheat and pulses for traders and retailers. But a not-so-great agricultural production year in 2023-24, thanks to an El Niño-induced patchy monsoon, and supply disruptions from Covid and the Russia-Ukraine war before that, have contributed to durable inflationary pressures through much of the Modi government’s second term.
The Modi-led National Democratic Alliance government, set to be sworn in by the weekend, will need to double down on inflation control. Imports of pulses and edible oils at zero/low duties should not only continue, but be extended to other agri-commodities such as wheat. The RBI, too, cannot cut its policy interest rates without anchoring of inflationary expectations — which, among Indian households, is clearly linked to the price of roti-dal-sabzi. A good monsoon — rainfall has been above-average so far and the Met Department expects it to sustain for the whole season (June-September) — should translate into a bountiful kharif harvest. Whether or not that happens, food inflation will probably present a big challenge for the new government.
