The short-term outlook for India’s inflation trajectory is benign and the pace of price rise is likely to align with the 4% target by 2025-26, Chief Economic Advisor V Anantha Nageshwaran said in the Economic Survey, even as he suggested adopting an inflation targeting framework that keeps volatile food prices out of the equation.

“Higher food prices are, more often, not demand-induced but supply-induced. Short-run monetary policy tools are meant to counteract price pressures arising out of excess aggregate demand growth. Deploying them to deal with inflation caused by supply constraints may be counterproductive,” the Survey’s authors noted.

“Therefore, it is worth exploring whether India’s inflation targeting framework should target the inflation rate excluding food. Hardships caused by higher food prices for poor and low-income consumers can be handled through direct benefit transfers or coupons for specified purchases valid for appropriate durations,” they said.

Mr. Nageswaran also flagged the need for high frequency price data of essential food items to enable monitoring of prices at every stage of production from farm to shelf, adding that a producer price index for goods and services can help get a “greater grasp of episodes of cost-push inflation”. He also mooted recalibrating the weightages of items in the Consumer Price Index according to the results of the recent Household Consumption Expenditure Survey 2022-23.

CEA suggested the government assess the progress of modern storage facilities for crops such as tomato and onion, which are subject to seasonal price surges and availability of these during seasons of high demand. The CEA also suggested focused efforts to promote production of non-conventional edible oils, including rice bran and corn oil in addition to increasing production of major oils. For pulses, the Survey’s authors have proposed promoting summer cultivation of Moong and Urad in areas with assured irrigation.