UPSC Mains 2024 GS3 Q2 — Monetary policy
What are the cause of persistent high food inflation in India? Comment on the effecticencess of the monetary policy of the RBI to control this type of inflation. (Answer in 150 words) 10
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Related Prelims MCQs
Build factual foundation — these MCQs cover facts/concepts you'll need for this Mains question.
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IAS 2011 Agricultural price policy
India has experienced persistent and high food inflation in the recent past. What could be the reasons ? 1. Due to a gradual switchover to the cultivation of commercial crops, the area under the cultivation of food grains has steadily decreased in the last five years by about 30% 2. As a consequence of increasing incomes, the consumption patterns of the people have undergone a significant change. 3. The food supply chain has structural constraints. Which of the statements given above are correct ?
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IAS 2015 Inflation and policy
With reference to inflation in India, which of the following statements is correct?
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IAS 2020 Inflation measurement
Consider the following statements : 1. The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI). 2. The WPI does not capture changes in the prices of services, which CPI does. 3. Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates. Which of the statements given above is/are correct ?
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IAS 2022 Inflation and policy
In India, which one of the following is responsible for maintaining price stability by controlling inflation ?
Source Map — where to read
"First, we will try to ask a scientific question. What are the different things that may change the way a puri puffs up when fried? To answer this, we may want to do some simple experiments. For that, we try and find out two main things—what all can we change or control when we do the experiment, and what all can we observe to see if these changes made any difference. In this case, we can perhaps think of the changing the thickness and the size of the rolled dough. We could also try to use different types of flour (atta, maida, etc.).…"
"The RBI Act, 1934, was amended in 2016 to provide a statutory and institutionalised framework for the creation of Monetary Policy Committee (MPC). MPC was set up in 2016 to meet the objective of Monetary Policy Framework Agreement (entered in 2015 between RBI and GOI) by entrusting RBI with the additional responsibility of inflation targeting, while keeping in mind the objective of economic growth. As per Monetary Policy Framework Agreement, RBI is responsible to contain annual inflation at 4 per cent (±2%) until March 2021 as per the current mandate. RBI is answerable to GOI if the inflation …"
"Farming, a major livelihood in India, can become unsustainable if not managed well by applying environment friendly farming practices. Humans have been practising farming for thousands of years to grow food. As the population grew, our dependence on agriculture increased. Between 1950 and 1965, India faced a food crisis due to low crop production. In the mid-20th century, the use of tractors, machines, synthetic fertilisers, and pesticides helped increase food production. This period is known as the Green Revolution. However, these farming methods are now considered unsustainable because of th…"
"As per the new monetary policy framework agreement, following are the important points: - • The objective of the monetary policy is to primarily maintain price stability, while keeping in mind the objective of growth• The monetary policy framework is operated by RBI• The inflation target is 4% with a band of +/- 2%• The inflation target is decided by the Government of India in consultation with RBI. The central government has notified the above inflation target for the period till March 31, 2026.…"
"This happens because of more saliva that gets released when you recall your favourite food. What do you think is the role of saliva in your mouth? What do you feel when you eat other types of food, such as chapati? Let us fi nd out. Take a small piece of chapati or a bite-sized portion of boiled rice and chew it properly for 30–60 seconds. At fi rst, the chapati or rice has its usual taste, but as you continue chewing, do you notice a change in taste? The food begins to taste sweet! Have you ever wondered why this happens?…"
How this topic is evolving
The discourse has shifted from managing persistent high food inflation to a rare 'disinflationary shock,' where food deflation (-2.71%) has breached the RBI's lower tolerance band. This transition necessitates a move from inflation-targeting to demand-stimulation, as the divergence between record-low headline inflation (0.25%) and a depreciating Rupee at 91 per USD creates a unique macroeconomic paradox.
Discuss the implications of a deflationary breach in the RBI’s inflation tolerance band for the Indian agricultural sector. How does such a 'disinflationary shock' impact the effectiveness of the Monetary Policy Committee (MPC) in balancing growth and price stability? (Answer in 150 words)
Why this framing: India's breach of the lower inflation tolerance band (0.25%) in October 2025 driven by food deflation.
Question Decoded — examiner's intent
- Directive verbs
- What areComment
- Scope keywords
- persistent high food inflationmonetary policyRBIcontrol this type of inflation
- Implicit sub-parts
- Analysis of supply-side vs demand-side causes of food inflation
- The limitations of the Monetary Policy Committee (MPC) in addressing non-monetary price shocks
- Assessment of whether current inflation targeting (CPI-based) is effective for food prices
- Common pitfalls
- Focusing only on general inflation causes (like money supply) without mentioning specific food drivers like perishability or MSPs
- Missing the nuance that food inflation is often 'transitory' yet 'persistent', requiring structural rather than just monetary fixes
- Failing to mention that food prices are largely outside the RBI's control due to supply-chain bottlenecks and climate factors
- Ignoring the weightage of food in the CPI basket which makes RBI's task mathematically difficult
- Dimensions required
- Supply-chain/LogisticsAgro-climatic factorsMonetary/MacroeconomicStructural/Infrastructure
- Marks allocation hint
Spend approximately 60-70 words on identifying 4-5 diverse causes of food inflation (supply-side focus). Use the remaining 80-90 words to critically evaluate the RBI's role, concluding that while monetary policy manages expectations, it is a blunt instrument for food shocks which require fiscal and structural interventions.
How examiners have framed this topic over the years
Transitioned from broad food security and processing infrastructure to specialized macroeconomic inflation control and micro-level farmer-side crop selection factors.
Before 2024, the examiner's lens moved from the socio-economic causes of hunger (2018) and food processing infrastructure (2019, 2022) to the historical achievement of becoming a net food exporter (2023). The 2024 question introduced a specific macroeconomic friction, linking persistent food inflation to the effectiveness of the RBI's monetary policy. Subsequently, in 2025, the examiner extended the framing from macro-level policy to the micro-level behavior of farmers and the factors influencing their selection of high-value crops, marking a shift from food as a basic utility to food as a strategic market commodity.
PYQs this pattern was synthesized from
Answer Skeleton — fill this in
Introduction
Food inflation, measured by the Consumer Food Price Index (CFPI), reflects the persistent rise in prices of essential commodities, often remaining volatile despite general price stability. [Economic Survey 2023-24]
Supply-Side Structural Causes
- Climate Vulnerability: Impact of El Nino, heatwaves, and unseasonal rains on "TOP" (Tomato, Onion, Potato) crops. [Yojana, Climate Change & Agriculture]
- Inefficient Supply Chains: High post-harvest losses (up to 15% in cereals) and fragmented cold storage infrastructure. [Economic Survey, Ch. Agriculture]
- Market Distortions: Lack of seamless inter-state trade and high intermediation costs under the APMC regime.
Demand-Side and Global Factors
- Changing Consumption Patterns: Shift towards protein-rich diets (milk, meat, pulses) outpacing supply growth. [NCERT Class 12 Macroeconomics, Ch. Demand]
- Import Dependence: Global price shocks in edible oils and pulses affecting domestic prices.
Effectiveness of RBI's Monetary Policy
- Supply-side Limitation: Monetary tools like Repo Rate primarily target demand; they have limited impact on "cost-push" food inflation. [NCERT Class 12 Macroeconomics, Ch. 3]
- Anchoring Expectations: RBI action is crucial to prevent "second-round effects" where high food prices leak into wage hikes and core inflation.
- Transitory vs Persistent: RBI's Flexible Inflation Targeting (4% +/- 2%) provides a buffer but requires fiscal support for supply management. [RBI Annual Report]
Conclusion
While the RBI manages liquidity and inflation expectations, persistent food inflation requires supply-side interventions like Operation Greens and cold-chain reforms. A coordinated "Fiscal-Monetary" approach is essential for long-term price stability.
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