Food for Expediency

A substantial rise in consumer food price inflation to 14.12% in December 2019, the highest ever in the past six years, has driven the retail price inflation in this country. However, with the core inflation rate still not overshooting the Reserve Bank of India’s (RBI) medium-term target of 4(+/- 2)%, speculations hover as to whether the RBI monetary policy committee will go for another rate cut in the coming month. This is a policy dilemma for the central bank not only because the overshooting inflation is resting on the back of undershooting growth and the fragile fiscal state of the economy, but more because the moot issues regarding the government’s key economic estimates, such as the fiscal deficit, largely remain unresolved.

The Comptroller and Auditor General has flagged discrepancies in the central government’s fiscal deficit estimates for the past two years, stating that the current figures have been kept at a 1.5% to 2% low by not including the government’s off-budget borrowings from public accounts, such as the National Small Savings Fund (NSSF). According to media reports, such off-budget expenditure of the current government stands at ₹1.5 lakh crore in 2019–20, and alarmingly, about three-fourths of the incremental off-budget expenditure are on account of under-recoveries in food subsidies of the Food Corporation of India (FCI).