India finds itself at the crossroads, as the Reserve Bank of India’s (RBI) monetary policy committee (MPC) grapples with the dual challenge of robust economic growth and a clouded inflation outlook. The recently released minutes of the December meet- ing of the MPC shed light on a cautious approach, emphasising the need to remain vigilant amid the turbulence of volatile and uncertain food prices. The MPC’s decision to keep the repo rate unchanged at 6.5 per cent, despite the economy running at full steam, underscores the committee’s commitment to balanc- ing growth and price stability. Rajiv Ranjan, an execu- tive director at the RBI, stressed the importance of maintaining this delicate equilibrium. In the face of rising retail inflation at 5.55 per cent in November, primarily propelled by soaring food prices, the MPC’s decision to hold firm on the withdrawal of accom- modation stance seems a prudent choice. One notable voice of dissent in this economic symphony was MPC member Jayant Varma who advocated a neutral stance or none at all. However, the majority’s decision suggests a prevailing sentiment that any shift in policy stance might be premature and carry inher- ent risks. RBI Governor Shaktikanta Das echoed this sentiment in his minutes, emphasising the need for caution and continuity. The inflation narrative takes a deeper dive when considering specific segments of the population. For farm workers and rural labourers, November brought about a considerable uptick in retail inflation ~ 7.37 per cent and 7.13 per cent, respectively.

The culprit was higher prices of specific food items. This paints a nuanced picture of the inflation- ary pressures felt by different segments of society, highlighting the cascading effect of food price volatil- ity on the everyday lives of those at the grassroots. RBI Deputy Governor Michael Patra’s assertion that the positive output gap in India since the beginning of the year signals demand-pull shaping inflation out- comes is a key insight. The delicate balance between demand and supply forces becomes pivotal in under- standing the trajectory of inflation. The recent surge in high growth numbers further underscores the importance of this interplay, with potential future supply shocks amplifying the inflation challenge.

Ashima Goyal, an external MPC member, injected a note of caution into the discussion. She warned that real interest rates could become excessively high if inflation sustains around the 4 per cent-mark by mid- 2024 without appropriate intervention. Her concern underscores the delicate nature of the RBI’s mission ~ aligning inflation with the 4 per cent target for sustai- ned economic growth. In the grand theatre of econo- mic policymaking, the MPC faces the challenge of steering through uncertain waters. Striking the right balance is not only an economic imperative but a so- cial one. The challenge lies not only in navigating the current storm of inflation but also in charting a course that fosters inclusive economic development, ensur- ing that the benefits of growth reach every Indian.