A politics-inflation trade-off has not really tested this govt

Source: The Hindu

Context:

1. The 2024 Electoral "Test"

Contrary to the idea that inflation didn't test the government, the 2024 Lok Sabha results are widely interpreted as a reflection of rural and semi-urban discontent over the cost of living.

• The Food Inflation Factor: In the 12 months leading to the 2019 polls, food inflation was near 0%. In contrast, the 12-month run-up to the 2024 elections saw retail food inflation averaging 7.88%, with items like pulses and vegetables frequently hitting double digits.
• The "Roti-Dal-Sabzi" Index: High prices of staples (cereals, pulses, and vegetables) are credited with eroding the incumbent's majority, forcing a shift from a single-party majority to a coalition government.

2. Radical Supply-Side Interventions

The government’s aggressive measures to shield consumers reveal how seriously they viewed the political risk of inflation.

• Export Bans: To prioritize domestic supply, the government imposed indefinite bans on the export of wheat (since 2022), non-basmati white rice (since 2023), and onions (extended in 2024).
• The Trade-off for Farmers: While these bans helped keep urban retail prices from exploding further, they severely impacted rural incomes. Reports suggest these market-restrictive measures cost Indian farmers approximately ₹39,829 crores in potential earnings, creating a different political headache in agrarian belts.

Key Fact

The Flexible Inflation Targeting (FIT) framework mandates the RBI to maintain CPI inflation at 4% with a tolerance band of +/- 2%.

3. Monetary-Fiscal Coordination

The government and the RBI have worked in a unique "lockstep" to manage this trade-off.

• Flexible Inflation Targeting (FIT): India has maintained one of the lowest deviations from inflation targets globally between 2021 and 2024 compared to advanced economies.
• Extension of Targets: In March 2026, the government formally extended the 4% inflation target for the period until 2031, signaling a commitment to price stability over "easy money" growth, even at the cost of higher interest rates.

Comparison of Eras

The perception that the government hasn't been "tested" often stems from comparing it to the UPA-II era (2009-2014), which saw double-digit headline inflation.

• Modi 1.0 vs 2.0: The first term (2014-2019) benefitted from a global collapse in crude oil and commodity prices. The second term (2019-2024) faced external shocks (Russia-Ukraine war, El Niño), making the recent management of inflation a much more proactive political battle

The politics-inflation trade-off did indeed test the government, not through a collapse of the macroeconomy, but through a loss of a parliamentary majority and a forced return to coalition politics as rural voters reacted to stagnant real wages and high food costs.