17 August 2024 : The Hindu Editorial Analysis

1. The essence of India’s inflation problem

(Source – The Hindu, International Edition – Page No. – 6)

Topic: GS3 – Indian Economy

Context

The article discusses the implications of the Economic Survey’s suggestion to exclude food prices from the RBI’s inflation target, arguing that this approach overlooks the significant impact of food inflation on the Indian population. It advocates for supply-side measures in agriculture to address rising inflation effectively.

Economic Survey’s Suggestion on Inflation Targeting

• The Economic Survey preceding the Union Budget has suggested that the price of food be excluded from the inflation target of the Reserve Bank of India (RBI).
• This implies a shift from targeting ‘headline inflation’ to ‘core inflation,’ which excludes food and fuel prices.
• To understand the implications, two aspects must be recognized: the recent experience with inflation in India and the current policy for inflation control.

Food Price Inflation and Its Impact

• Food price inflation in India has been very high by historical standards, with a year-on-year increase close to 10% in June.
• This trend has been ongoing since 2019, prior to the COVID-19 pandemic and the Ukraine war, indicating domestic factors at play.
• Given that food accounts for a large part of the consumer price index, overall inflation has also been higher.

Current Inflation Control Policy

• Since 2016, the RBI has been mandated to control inflation through variations in the interest rate, known as ‘inflation targeting’.
• However, the RBI has missed the targeted 4% inflation rate every year in the past five years, similar to other central banks like the Bank of England and the U.S. Federal Reserve.
• Fluctuations in global food prices have significantly influenced inflation trajectories in these economies.

Justification and Effectiveness of Targeting Core Inflation

• The proposal to exclude food prices from the inflation target is questioned, considering that food constitutes about 50% of household expenditure in India, which is high by international standards.
• Ignoring food price changes in inflation targeting would mean overlooking the most critical aspect affecting a large section of the population.
• The notion that food price fluctuations are ‘transitory’ is not true for India, as food price inflation has been consistently positive over the past 13 years.

RBI’s Ability to Control Core Inflation

• Targeting core inflation is unlikely to make the RBI more successful in controlling inflation.
• Historically, core inflation has rarely stayed within the targeted 4%, and an increase in the RBI’s repo rate does not necessarily dampen core inflation; instead, it may cause inflation to rise as firms adjust prices to maintain profits.
• Food price inflation influences core inflation, as rising food prices lead to higher wages, which in turn affect overall production costs.

Supply-Side Solutions and Agricultural Focus

• The real issue lies in the rising price of food, which is central to India’s inflation.
• Removing food prices from the inflation target without a plan to control them would leave India vulnerable to rising inflation.
• The solution requires supply-side measures to increase agricultural yield, ensuring that supply meets demand at stable prices as the population and economy grow.
• The Economic Survey’s suggestion of income transfers to households as a solution is seen as inadequate, as continuously rising food prices would strain the budget, leaving less for public goods.

Conclusion

• Targeting core inflation by excluding food prices is not a viable solution.
• A comprehensive approach to agricultural production and controlling the price of all goods is essential for maintaining the standard of living and achieving stable inflation in India.

Practice Question:  Discuss the potential implications of excluding food prices from the Reserve Bank of India’s inflation targeting framework. Evaluate the effectiveness of this approach in the context of India’s economic conditions. (250 Words /15 marks)

2. Ensuring social justice in the bureaucracy

(Source – The Hindu, International Edition – Page No. – 6)

Topic: GS2 – Social Justice

Context

The issue revolves around the lack of representation of Scheduled Caste (SC) and Scheduled Tribe (ST) officers in the 2024 Budget framing process, highlighted by Rahul Gandhi in Parliament. The debate underscores ongoing concerns about the underrepresentation of marginalised communities in senior government roles and the broader implications for social justice.

Introduction

• In his July 29, 2024, parliamentary address, Rahul Gandhi raised concerns over the lack of SC/ST representation in the 2024 Budget framing, highlighting the underrepresentation of marginalised communities in key government roles.
• The Union Finance Minister countered by pointing out similar exclusions in Gandhi-associated organisations, shifting the focus from the serious issue of underrepresentation in senior civil service positions to a political exchange.

Continuing Upper Caste Domination in Civil Services

• The real reason for the absence of SC/ST officers in the Budget-making exercise is the ongoing domination of upper castes at senior levels in the civil service.
• Minister of State Jitendra Singh provided data in December 2022, revealing that out of 322 Joint Secretaries and Secretaries, only 16 were SC, 13 were ST, and 39 were OBC, while 254 belonged to the General category.
• This reflects a significant underrepresentation of reserved category officers in senior policy-making positions, highlighting the lack of reservation for promotions in Class A services.

Challenges Due to Age Factor and Retirement Rules

• SC/ST and PwBD candidates often enter the civil services later than their general category counterparts, limiting their ability to reach senior positions before retirement.
• The current eligibility and retirement structure inadvertently favours those who join early, regardless of performance, leading to a systemic disadvantage for those from reserved categories.
• The current retirement age means that many SC/ST and PwBD officers retire at lower or middle levels, never reaching top positions despite their qualifications and potential.

Proposal for Fixed Tenure System

• There is a need for radical change in retirement rules to address this issue: a fixed tenure of 35 years for all civil servants, irrespective of their age of entry, ensuring that late entrants have equal opportunities to reach senior positions.
• If working into the seventies is deemed inappropriate, the entry age limits could be adjusted to ensure retirement by around 67 years of age.
• Annual medical fitness exams after the age of 62 could be implemented to ensure that civil servants remain fit to serve.

Call for a Committee to Address the Issue

• To realise a Viksit Bharat (Developed India) with social justice for all, it is crucial to address the underrepresentation of SC/ST and OBC officers in senior civil service roles.
• As a first step, it is proposed that the Leader of the Opposition should advocate for an independent, multi-disciplinary committee with adequate representation from SC/ST, OBC, and PwBD communities to examine the feasibility of a fixed tenure system.
• This committee should approach the issue with an open mind and work towards ensuring equal opportunities in the civil services.

Practice Question:  Discuss the implications of underrepresentation of SC/ST officers in the formulation of government policies, with reference to the 2024 Budget framing process. How does this affect social justice and inclusive governance in India? (250 Words /15 marks)