NEW DELHI: India has successfully managed inflationary pressures stemming from global economic troubles, supply chain disruptions, and erratic monsoons. Retail inflation, after averaging 6.7% in FY23, declined to 5.4% in FY24, thanks to effective administrative and monetary policy responses.
Meanwhile, fiscal balances have improved progressively, despite expansionary public investments, attributed to enhanced tax compliance, expenditure controls, and increased digitization efforts.
The Reserve Bank of India’s (RBI) measures aimed at maintaining price stability played a crucial role in this achievement. The decline in core inflation, both in goods and services, underscored the efficacy of these policies.
Core services inflation eased to a nine-year low in FY24, while core goods inflation also declined to a four-year low.
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The global energy price index experienced a sharp decline during FY24. Concurrently, the Indian government implemented price cuts for LPG, petrol, and diesel, keeping retail fuel inflation low throughout the year. Notably, reductions in LPG prices since August 2023 led to deflationary trends in this sector, benefiting consumers across the country.
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Despite overall inflation management, food prices faced upward pressure due to adverse weather conditions impacting agricultural output. Food inflation rose from 6.6% in FY23 to 7.5% in FY24, influenced by factors such as regional crop diseases, erratic monsoons, and logistical disruptions. The government responded with strategic measures including dynamic stock management, open market operations, and subsidies on essential food items to mitigate these effects.
In FY24, most states witnessed decreased inflation rates, with 29 out of 36 recording rates below 6%. However, states with higher food prices saw a wider rural-urban inflation gap, reflecting the impact of food inflation on rural economies. This disparity highlights the need for targeted policies to address regional inflation variations effectively.
Looking ahead, the RBI projects further moderation in inflation, forecasting rates to decrease to 4.5% in FY25 and 4.1% in FY26, contingent upon normal monsoon conditions and stability in external factors. The international outlook also shows promise, with expected declines in global commodity prices, including energy and food, which could contribute to easing domestic inflationary pressures.