Government Strategies to Control Inflation Highlight Budget 2025 Agenda
The 2025 Union Budget, to be presented by Finance Minister Nirmala Sitharaman, holds the responsibility of addressing India’s persistent inflation concerns. Inflation, a pressing issue for policymakers, has continued to challenge the nation despite the Reserve Bank of India (RBI) maintaining policy rates at 6.5% since February 2023. Temporary relief has been seen, but the broader issue remains critical.
Both the RBI and the Finance Ministry have warned that unchecked inflation could jeopardize the real economy’s prospects. The Monetary Policy Committee (MPC) of the RBI chose to keep the repo rate steady during its December 2024 meeting, citing inflationary risks. The central bank raised its inflation forecast for the fiscal year to 4.8%. Among the members, Dr. Nagesh stood out for advocating a 25-basis-point rate cut, emphasizing that such a move could boost economic growth without aggravating inflation, which could potentially ease due to seasonal price corrections. He also recommended non-rate measures, such as a 50-basis-point reduction in the Cash Reserve Ratio (CRR), to improve liquidity in the market.
Inflation surged to 6.2% in October 2024, marking the fastest increase in over a year, largely driven by food prices, which spiked to a 15-month high of 10.9%. Although retail inflation eased to 5.48% by December, it remained above the RBI’s tolerance band of 2-6%. High food prices have been a significant contributor, causing a slowdown in demand. Policymakers have stressed the importance of aligning inflation with the RBI’s 4% target to ensure sustained economic growth.
The Economic Survey 2024 suggested that India’s inflation-targeting framework exclude food prices, given their supply-driven nature. The government has been urged to address food inflation with supply-side interventions rather than relying on the RBI’s demand-side tools. Technological solutions, such as blockchain and AI, could play a transformative role in digitizing supply chains, improving inventory tracking, and predicting weather-based disruptions, thus reducing wastage.
Expectations for the 2025 Budget include short-term measures such as Direct Benefit Transfers (DBTs) and food coupons to support rural consumption, which has been significantly impacted by higher rural inflation. In the long term, strengthening agricultural value chains and addressing structural supply-side challenges are seen as critical steps. This could include initiatives to reduce post-harvest losses and ensure better delivery of produce to markets.
Building a robust network of cold storage facilities and warehouses at district and village levels could play a vital role in minimizing post-harvest losses and maintaining a steady food supply. Expanding digital marketplaces like the National Agricultural Market (eNAM) could help farmers directly connect with buyers, bypassing intermediaries and reducing costs. Efficient functioning of food distribution programs such as the Public Distribution System (PDS) could shield the poorest sections of society from the brunt of food inflation.
The 2025 Budget presents a significant opportunity to tackle the inflation challenge by combining immediate relief measures with long-term structural reforms. By focusing on innovation, infrastructure, and efficient distribution, the government can ensure a more stable economic environment while addressing the pressing concerns of inflation.
