Decreasing Inflation Will Increase the Economy
- Dr. Jayantilal Bhandari
According to the data released recently by the National Statistical Office (NSO), India's retail inflation fell to a seven-month low of 3.61 percent in February 2025, while food inflation fell below 4 percent for the first time in almost two years. It is important to note that retail inflation has been declining since October last year. In the month of October, it was at the level of 10.87 percent. In such a situation, the overall inflation rate also remained high for some time, and the scenario of policy complexities for the Reserve Bank of India was built.
It is noteworthy that the Reserve Bank has continuously moved forward on the policy of maintaining a balance between inflation and interest rates and then on February 7, when found appropriate, RBI Governor Sanjay Malhotra cut the repo rate by 0.25 percent to 6.25 percent. Now with inflation decreasing further, the expectations of further reduction in interest rates in the upcoming April 2025 meeting of the Reserve Bank of India have become stronger. Not only this, at this time there are also signs that to increase demand and consumption in the economy, the Finance Ministry may reduce the interest rates of small savings schemes in the year 2025 itself. By reducing the interest rates of savings schemes, people will move forward to spend money. There is no doubt that due to high interest rates, consumers were shying away from taking loans and due to the high cost of loans, entrepreneurs were also not showing readiness for expansion plans. In such a situation, the new decisions will accelerate the growth rate by increasing the purchasing power and consumption of the people.
There is no doubt that one of the main reasons behind the retail inflation coming down significantly in the country after remaining high for a long time is also better agricultural production. According to the second advance estimate of the production of major crops in 2024-25 released recently, food grain production is expected to be 7.9 percent higher in Kharif than last year, and there is also a possibility of a 6 percent increase in Rabi food grain yield. Due to this, the production of wheat, rice, and maize crops can reach record levels. Along with this, the production of other food grains and coarse grains, tur, and gram can also reach record highs. Similarly, there will be a rapid increase in fruit and vegetable production. India is the second largest country in the world in terms of fruit and vegetable production. According to estimates, horticultural crop production can be 36.21 crore tonnes in 2024-25, which will be 2.07 percent more than 2023-24. Not only this, agriculture and allied sectors can grow by 4.6 percent in the Gross Domestic Product (GDP) in the year 2024-25. Last year this growth rate was 2.7 percent.
It is worth mentioning here that the Reserve Bank of India (RBI) bulletin of February 2025 and the State Bank of India (SBI) Research Report 2025 unanimously state that now the strong signs of acceleration in economic activities in the country are positive messages increasing the growth rate. The economy is getting strength due to the increase in the capital expenditure of the government, improvement in rural demand as well as urban demand, and reduction in inflation. In the bulletin issued by the RBI, it has been said that the growth indicators such as vehicle sales, air traffic, steel consumption etc., are indicating an increase in the country's activities, and there is a possibility of further acceleration in these activities. It has been said that the measures taken in the budget for the year 2025-26, which will come into effect from April 1, to promote the four engines of development, agriculture, MSME, investment, and export, are expected to boost the medium-term growth prospects of the Indian economy. The strong performance of the agricultural sector is expected to further boost rural demand. Amid the income tax relief announced in the Union Budget for the financial year 2025-26, a major improvement is also expected in urban demand, given the fall in inflation and the increase in disposable income. The way Finance Minister Sitharaman has benefited taxpayers with unprecedented reliefs under the new tax regime of income tax, consumption will increase rapidly. Similarly, the SBI Research report emphasizes that despite the adverse global economic conditions created by Donald Trump becoming the President of America and the imposition of mutual tariffs by him, the Indian economy has new strong economic prospects.
Undoubtedly, the reduction in inflation rate in the country is accelerating the growth rate. It is no small matter that at a time when inflation is out of control in many countries of the world, inflation is decreasing in India. International Monetary Fund Managing Director Kristalina Georgieva has admitted that we have not been able to control inflation in the world by the year 2024. Therefore, now we will make every possible effort to stop the rising inflation in the world. In such a situation, the special thing for India is that the Reserve Bank of India has also increased the inflation rate. According to this, retail inflation will average 4.2 percent in 2025-26, which is 4.8 percent in the current financial year 2024-25. In such a situation, due to an increase in agricultural production, food inflation and interest rates will naturally decrease and total consumption will also increase.
Although a sharp fall in food prices and low core inflation have created scope for a reduction in policy rates, falling inflation and rising food production have forced the government to relax its long-standing policy stance on agriculture. We must avoid losing sight of the challenges. The problems created by extreme weather events and climate change must be addressed. There is a need to pay constant attention to these issues. There is a huge difference between the price received by farmers and the price paid by consumers, wastage of crops due to lack of storage and warehouses, distance between farms and markets, and bad roads. Continuous attention will have to be paid to removing such obstacles. Continuous efforts will have to be made to create an agricultural supply chain in the country.
We expect that with the fall in inflation, increase in food grain production, reduction in interest rates, and the purchasing power of consumers due to the unprecedented tax relief measures for the middle class under the budget for the year 2025-26, effective from April 1, 2025, the increase in demand and consumption will accelerate the growth rate, due to which the growth rate in the year 2025-26 will also be seen at a high of 7 percent.
