Indian Express Editorial Summary

Editorial Topic 1: India’s Inflation: A Mixed Bag

GS-3 Mains : Economy

Revision Notes

Question :Evaluate the factors contributing to the decline in headline inflation and the persistent concerns related to food inflation. Discuss the implications of these trends for the Indian economy.

Basic Concept  : Part-1

Headline Inflation

• Headline Inflation is the measure of total inflation within an economy. It includes price rise in food, fuel and all other commodities.
• The inflation rate expressed in Wholesale Price Index (WPI) usually denotes the headline inflation. Though Consumer Price Index (CPI) values are often higher, WPI values traditionally make headlines.

Core Inflation (Underline Inflation or Non-food Inflation)

• Core inflation is also a term used to denote the extend of inflation in an economy. But Core inflation does not consider the inflation in food and fuel. This is a concept derived from headline inflation.
• There is no index for direct measurement of core inflation and now it is measured by excluding food and fuel items from Wholesale Price Index (WPI) or Consumer Price Index (CPI).

Core inflation = Headline inflation – (Food and Fuel) inflation.

 

Basic Concept  : Part-2

Inflation: Merits and Demerits

Merits of Inflation

1. Stimulates economic activity: Low levels of inflation can encourage people to spend, increasing demand and driving economic growth.
2. Boosts company profits: Inflation allows companies to raise prices and increase profits, potentially fueling investment and development.
3. Reduces debt burden: As inflation erodes the value of currency, the real value of existing debt decreases, benefiting borrowers.
4. Discourages hoarding: Inflation discourages people from holding onto cash, as they know its value will decline over time. This incentivizes them to invest and put their money to work.
5. Promotes exports: Inflation can make domestic goods relatively cheaper, potentially increasing exports.
6. Wage demands: In an inflationary environment, workers may demand higher wages to maintain their purchasing power.
7. Increases government revenue: Inflation can lead to higher government revenue from taxes, as tax brackets typically don’t adjust automatically.
8. Investment redirection: To hedge against inflation, investors may shift towards real assets like stocks and real estate, boosting investment in various sectors.
9. Adoption of new technologies: Companies may be incentivized to adopt newer, more efficient technologies due to rising costs, leading to productivity gains.
10. Prevents deflation: Mild inflation can help prevent the economy from entering a deflationary spiral.

Demerits of Inflation

1. Decreased purchasing power: Inflation reduces the amount of goods and services that can be purchased with a fixed amount of money, lowering people’s living standards.
2. Discourages saving: Saving becomes less attractive in inflationary times as the future value of money diminishes.
3. Economic uncertainty: Inflation creates uncertainty as it makes predicting future prices difficult, hindering investment and business decisions.
4. Widens income inequality: The impact of inflation is not uniform across society. Low-income earners and those on fixed incomes are disproportionately affected.
5. Reduced investment: High inflation can discourage investment due to uncertain future returns.
6. Strikes and social unrest: When wages lag behind inflation, it can lead to strikes and social unrest.
7. Higher import costs: The cost of imported goods can rise due to a weakening domestic currency caused by inflation.
8. Currency devaluation: Excessive inflation can significantly devalue a country’s currency, impacting international trade and investment.

 

Back to the Editorial

• Headline Inflation: Eased slightly to 4.83% in April (down from 4.85% in March) as per National Statistical Office data.
• Core Inflation: Remained subdued.
• Food Inflation: Edged upwards to 8.7% (from 8.52% in March). This is a key concern despite the overall decline.
• Reasons for Decline: Softening of prices in fuel and light segment.
• Food Basket Inflation Breakdown:
  • Elevated inflation in cereals, meat & fish, eggs, vegetables, and pulses.
  • Hope for improvement: Expectation of a good monsoon season (predicted by India Meteorological Department) could boost agricultural production and control food prices.
• Non-Food Inflation: Remained subdued in most segments like clothing, footwear, household goods, and recreation.
• Food Inflation Concern: High food inflation (>8% for many months) creates uncertainty for the Monetary Policy Committee (MPC).
• RBI’s Stance: Governor Das emphasizes vigilance due to continuing food price challenges. An RBI study warns that unanchored inflation expectations could worsen the situation.
• Global Rate Cut Dilemma: Major central banks haven’t begun cutting rates yet.
  • US Fed: Inflation remains a concern (March CPI – 3.5%, up from 3.2%). Reassessment of rate cut timeline and magnitude is underway.
  • European Central Bank: Likely to begin rate cuts in June.
  • Bank of England: Possibility of rate cuts this summer.
• India’s Situation:
  • RBI inflation projection for 2024-25: 4.5%.
  • Policy pivot unlikely in the near future due to food price uncertainty (as per MPC minutes).

Overall: While core inflation is subdued, rising food prices and their uncertain trajectory make it unlikely for RBI to cut rates soon.

 

 

 

Indian Express Editorial Summary

Editorial Topic 1: Employment in India: An Analysis (1983-2023)

GS-3 Mains : Economy

Revision Notes

Question : Analyze the trends in employment growth in India from 1983 to 2023, focusing on the distinction between principal and subsidiary employment. Evaluate the factors contributing to this growth and discuss its implications for the Indian economy.

Data and Methodology:

• Analysis based on NSSO data from 1983 to 2023.
• Focuses on “principal employment” (stable, full-year work) vs. “subsidiary employment” (part-time/short-term).
• Only principal employment considered for growth calculations.

Key Findings:

• Consistent Growth: Employment has grown steadily since 1983 across all sub-periods. There has been no period of “jobless growth.”
• Fastest Growth: Highest increase (80 million new jobs) occurred between 2017-18 and 2022-23, translating to a 3.3% annual growth rate (outpacing population growth).
• Broad-Based Growth: This growth is spread across sectors (rural/urban, manufacturing, agriculture, construction, services), age groups, and genders (including women).

Women and Older Workers:

• Women’s Employment: Highest growth rate (over 8% annually) observed for women.
• Possible Reasons:
  • Traditional view: Distress due to economic hardship forces women and older people to work.
  • Alternative view: Falling fertility rates, improved living standards, and greater lifespans create more flexibility for women and older adults to enter the workforce.

Sectoral Growth:

• Manufacturing & Construction: Growth observed (3.4% and 5.9% annually), but not as high as in previous years.
• Agriculture & Services: Strongest growth seen in these sectors.
• Within Agriculture: Livestock and fisheries may have seen the most significant rise, compared to traditional cropping.

Employment Growth in India: Complexities

Growth Composition:

• Total employment growth of 80 million (2017-18 to 2022-23)
• 44 million (55%) in self-employment and unpaid family work
• May reflect lack of better employment options

Government Intervention:

• PMMY scheme (Mudra): Provided loans to 380 million accounts (disbursed nearly Rs. 23 lakh crore)
• Direct Cash Transfers: Increased in recent years

Wage Growth Concerns:

• Average annual salary/wage growth (2017-18 to 2022-23):
  • 6.6% nominal
  • 1.2% real (after inflation)
• Possible reasons for stagnant real wages:
  • Large workforce influx suppressing wage growth
  • Stagnant labor productivity

Conclusion:

• Need for deeper analysis of employment surge causes:
  • Government programs
  • Economic & demographic shifts
  • Distress factors
• Simple explanations are insufficient for a complex situation.