Central government and the state governments must work together to bring inflation down, says FM

9 Sept 2022 , 02:57 PM

States and the federal government must work together to combat inflationary pressure, according to finance minister Nirmala Sitharaman. In a conference on taming inflation sponsored by the Indian Council for Research on International Economic Relations, Sitharaman said, "Now, if states' inflation is also to be ascribed to the government of India, we need to establish a mechanism in which we work together to tackle inflationary concerns" (ICRIER).

According to her, there have been several conversations regarding the devolution of taxable income, and similarly, there are sufficient grounds to comprehend how governments likewise control their inflation.

It seems implausible that the Center is the lone entity responsible for managing inflation. And when states don't do enough, that region of India suffers from the lack of a solution to the pressure caused by inflation. The external variables impact the federal government and the states, according to Sitharaman.

Despite the Products and Services Tax (GST), which opened up a single market, eliminated tolls, and levies, and allowed for freer movement of goods, inflation rates vary from state to state across the nation.

She said that when fuel prices increased globally, the central government twice decreased the cost of items and gasoline wherever it was feasible. "Now, very recently, information that is generally available in the public domain demonstrates how inflation has differed from state to state. There could be a variety of causes. However, the reality remains that, strangely, in states where gasoline costs have not decreased, I observe inflation that is higher than the national average inflation.

According to her, this demonstrated that the movement of food grains and other commodities connected to food genuinely affected the price of those products, which make up the majority of the CPI. According to Sitharaman, India's approach to managing the economy, which includes managing inflation as well, has been using both fiscal and monetary policy.

"Monetary policy, which has been completely ineffective in many countries, cannot be relied upon alone to solve the problem. And these are nations whose economic systems provide as the foundation for the idea that the best way to control inflation is through interest rates, according to Sitharaman.

She said that managing inflation in India involves a variety of strategies, the bulk of which, even in the current environment, fall outside the purview of monetary policy.

She said that a variety of variables influence how well India manages inflation. The central bank, its tools, and its interest rate management are extremely important components, but they cannot be the sole ones, according to her.

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