THE INTRODUCTION: The Agriculture sector which accounts for 18.8 percent of the Gross Value Added (GVA) of the country in 2021-22 has experienced buoyant growth in the past 2 years. It grew at 3.9 percent in 2021-22 and 3.6 percent in 2020-21 showing resilience in the face of COVID-19 shock. The Survey attributes this to “good monsoon, various Government measures to enhance credit availability, improve investments, create the market facility, promote infrastructure development and increased provision of quality inputs to the sector”. It also observes that livestock and fisheries have experienced buoyant growth and had helped the sector perform well.

GROSS VALUE-ADDED AND GROSS CAPITAL FORMATION

• The share of the agriculture and allied sector in total GVA of the economy has settled at around 18 percent in the long term states the Survey. In the year 2021-22 it is 18.8 percent and in the year 2020-21, it was 20.2 percent. Another trend observed is, higher growth in allied sectors (Livestock, Forestry and Logging, Fishing and Aquaculture) compared to the crop sector. Recognizing these allied sectors as engines of high growth the Committee on Doubling Farmers’ Income (DFI 2018) had also recommended focused policy with a concomitant support system to boost agricultural incomes.
• There is a direct correlation between capital investments in agriculture and its growth rate. The Gross Capital Formation in the agricultural sector relative to the GVA in the sector is showing a fluctuating trend in sync with the variation in private sector investments, whereas the public sector investments have remained stable at 2-3 percent over the years. The Survey suggests “higher access to institutional credit to farmers and greater participation of the private corporate sector” may improve private sector investment in agriculture. Towards this end, the Survey recommends offering an appropriate policy framework to crowd-in corporate investments along with an increase in public investments along the entire agricultural value chain.

AGRICULTURAL PRODUCTION

• The Survey states that as per the First Advance Estimates for 2021-22 (Kharif only), total food grain production is estimated at a record level of 150.50 million tonnes, an increase of 0.94 million tonnes over Kharif production in the year 2020-21. Survey also points out that the production of rice, wheat, and coarse cereals had increased at Compound Annual Growth Rates (CAGR) of 2.7, 2.9, and 4.8 percent respectively over the period between 2015-16 and 2020-21. For pulses, oilseeds, and cotton during the same period, it has been 7.9, 6.1, and 2.8 percent respectively.
• India is the second-largest producer of sugar in the world. India has become a “sugar surplus nation” says the Survey. It points out that since 2010-11, the production has outstripped the consumption except in the year 2016-17.  This has been made possible by ensuring and protecting the sugarcane farmers against price risk through Fair and Remunerative Price (FRP), enhancing the liquidity of mills by incentivizing them to divert excess sugarcane/sugar to ethanol production and provide financial assistance for transportation to sugar mills to facilitate the export of sugar says Survey.

CROP DIVERSIFICATION

• The existing cropping pattern is skewed towards the cultivation of sugarcane, paddy, and wheat which has led to the depletion of fresh groundwater resources at alarming rates, it also points out that extremely high water stress levels are recorded in the country’s north-western region.
• To promote water use efficiency and sustainable agriculture and ensure higher incomes to farmers, the Government is implementing the Crop Diversification Programme in the original green revolution States viz., Punjab, Haryana, and Western Uttar Pradesh as a sub-scheme under Rashtriya Krishi Vikas Yojana since 2013-14 to shift area under paddy cultivation towards less water-intensive crops such as oilseeds, pulses, and Nutri-cereals, etc. The program also focuses on shifting areas under tobacco cultivation to alternative crops in States viz. Andhra Pradesh, Bihar, Gujarat, Karnataka, Maharashtra, West Bengal among other tobacco-producing states. The government is also using price policy to signal farmers to diversify their crops.

WATER AND IRRIGATION

• 60 percent of the net irrigated area in the country is serviced through groundwater. The rate of extraction of groundwater is very high (more than 100%) in the states of Delhi, Haryana, Punjab, and Rajasthan. Noting that increased coverage under micro-irrigation can be the most effective mode of water conservation, the Survey suggests these States need to focus on both medium and long-term groundwater recharge and conservation plans.
• To mobilize resources to expand coverage of micro-irrigation, a Micro-Irrigation Fund (MIF) with a corpus of Rs. 5000 crores were created under NABARD during 2018-19. As of 01.12.2021, projects with loans under MIF amounting to Rs. 3970.17 crore has been approved for 12.81 lakh hectares of micro-irrigation area. Further, the Survey highlights that under Pradhan Mantri Krishi Sinchayee Yojana, as of 14.12.2021 total area of 59.37 lakh hectares has been covered under micro-irrigation in the country from 2015-to 16.

NATURAL FARMING

• To sustain agricultural production through eco-friendly processes in tune with nature, ensure chemical-free produce and preserve soil productivity government is also encouraging farmers to adopt natural farming techniques. Towards this end, the government is implementing a dedicated scheme of the Bharatiya Prakritik Krishi Paddhati Programme (BPKP).

AGRICULTURAL CREDIT AND MARKETING

• The agricultural credit flow for the year 2021-22 has been fixed at Rs. 16,50,000 crores and till 30^thSeptember 2021, against this target a sum of Rs.7,36,589.05 crores has been disbursed. Moreover, under the Atma Nirbhar Bharat program, the government also announced an Rs. 2 lakh crore concessional credit boost to 2.5 crore farmers through Kisan Credit Cards (KCC). Towards this end, banks have issued KCCs to 2.70 crore eligible farmers as of 17.01.2022. Further Government has extended the KCC facility to the fisheries and animal husbandry sector in 2018-19.
• To link the farmers with markets and to help them in trading and realizing competitive and remunerative prices for their produce the government has been working continuously to improve market linkages and marketing infrastructure. Towards this end, the APMCs have been recognized as eligible entities under Agriculture Infrastructure Fund (AIF). Additionally, under the National Agricultural Market (e-NAM) scheme as of 1^stDecember 2021, 1000 mandis of 18 States and 3 UTs have been integrated with the e-NAM platform.

• The Government has also launched a central sector scheme of ‘Formation and Promotion of 10,000 Farmer Producer Organisations (FPOs)’ to form and promote 10,000 FPOs by 2027-28. As of January 2022, a total of 1963 FPOs have been registered under the scheme. The government has also established a full-fledged Ministry of Co-operation in July 2021 to provide a greater focus on the cooperative sector.

NATIONAL MISSION ON EDIBLE OILS

• India is the world’s second-largest consumer and number one importer of vegetable oil. The oilseed production in India has been steadily growing since 2016-17. It was showing a fluctuating trend before that. It had grown at almost 43 percent from 2015-16 to 2020-21.
• The demand for edible oil in India would remain high due to population growth, urbanization, and the consequent change in dietary habits and traditional meal patterns.
• Given the persistently high import of edible oil, to increase oil production the Government had been implementing a centrally sponsored scheme of National Food Security Mission: Oilseeds (NFSM – Oilseeds) since 2018-19 across all districts in the country.
• The scheme the government has set up 36 oilseed hubs between 2018-19 and 2019-20 to increase the availability of high yielding quality seed. For Kharif 2021, the union government had allocated 9.25 lakhs of oilseed mini kits of high yielding varieties to states for distribution.
• Further, in August 2021, the Government had launched the National Mission on Edible Oils – Oil Palm (NMEO-OP) to augment the availability of edible oils by “harnessing area expansion and through price incentives”. The scheme aims to cover an additional area of 6.5 lakh hectares for oil palm by 2025-26 and thereby reach a target of 10 lakh hectares ultimately.
• Currently 3.70 lakh hectares area under oil palm cultivation. Also, the scheme aims to increase the Crude Palm Oil (CPO) production to 11.20 lakh tonnes by 2025-26 and up to 28 lakh tonnes by 2029-30.

FOOD MANAGEMENT

• India runs one of the largest food management programs in the world. The Survey highlights that during the year 2021-22, the government had allocated 1052.77 lakh tonnes of food grains to States/UTs under the National Food Security Act, 2013, and other welfare schemes compared to 948.48 lakh tonnes in 2020-21.
• The government has further extended the coverage of food security through the additional provision of 5Kg food grains per person per month through the Pradhan Mantri Gareeb Kalyan Yojana (PMGKY). Under the scheme during 2021-22, the government had allocated 437.37 LMT of food grains and in 2020-21, 322 LMT of food grains free of cost to around 80 crore NFSA beneficiaries to ameliorate the hardships faced by the poor due to economic disruption caused by COVID-19 pandemic.
• The government had also approved the centrally sponsored pilot scheme ‘Fortification of Rice and its Distribution under PDS’ on 14.02.2019 for three years.
• The scheme is being implemented in 15 districts (1 district per State) and the government had distributed 3.38 LMT of fortified rice till December 2021 under the pilot scheme.
• During Kharif Marketing Season (KMS) 2020-21, 601.85 lakh metric tonnes (LMT) of rice have been procured against an estimated target of 642.58 LMT. In the KMS 2021-22, a total of 566.58 LMT of paddy (equivalent to 379.98 LMT rice) was procured as of 16.01.2022. During RMS 2021-22, 433.44 LMT of wheat was procured against 389.92 LMT procured during RMS 2020-21. Also, during the Kharif & Rabi Marketing Season 2020-21, approximately 11.87 LMT of coarse grains has been procured which is the highest in the last five years.

AGRICULTURAL RESEARCH AND EDUCATION

• Every rupee spent on agricultural research and development, yields much better returns. Increasing R&D spending on agriculture is, therefore, not only a vital necessity for ensuring food security but also important from the socio-economic point of view.
• Agricultural research and education are crucial for “development of environmentally sustainable global food system, ensuring food and nutrition security and increasing farm income by cost minimization and yield maximization” says the Survey. It points out that the National Agricultural Research System of India has produced significant results. The Indian Council of Agricultural Research (ICAR) during 2020 and 2021 notified/released a total of 731 new varieties/hybrids of field crops. The Department of Agriculture Research and Education (DARE) has developed 35 special trait varieties including bio-fortified and stress-tolerant varieties of field and horticulture crops during 2021-22.

CONCLUSION: The performance of the agriculture and the allied sector has been resilient to the COVID 19 shock. The sector grew at 3.6 percent in 2020-21 and improved to 3.9 percent in 2021- 22. However, as shown by the latest SAS report, the fragmentation of landholdings has led to alternate sources such as livestock, fishery, and wage labor becoming significantly important for an agricultural household. The increasing importance of allied sectors including animal husbandry, dairying, and fisheries in the growth and income of the farmers indicates that focus needs to shift more towards harnessing the potential of allied activities. There is also a need to improve the productivity of small and marginal farmers through the development and implementation of smallholding farm technologies.

THE INTRODUCTION: In 2020-21, India progressed further on achieving the Sustainable Development Goals (SDGs). In 2021, India continued exercising significant climate leadership at the international stage under the International Solar Alliance (ISA), Coalition for Disaster Resilient Infrastructure (CDRI), and Leadership Group for Industry Transition (LeadIT Group). The chapter discusses several initiatives taken in the area of sustainable finance by the Ministry of Finance, RBI, and SEBI.

INDIA’S PROGRESS ON SUSTAINABLE DEVELOPMENT GOALS

• India has been making strides towards achieving the social, economic, and environmental goals covered under SDGs.
• This achievement gains further significance in the face of the considerable human and economic costs imposed by the COVID-19 pandemic, which has set countries back on their developmental goals and created serious impediments to the attainment of the SDGs, the world over.

GOAL WISE PERFORMANCE OF INDIA AS A WHOLE: NITI AAYOG SDG INDIA INDEX REPORT AND DASHBOARD 2020-21

• India’s overall score on the NITI Aayog SDG India Index & Dashboard improved to 66 in 2020-21 from 60 in 2019-20 and 57 in 2018-19, showing progress in India’s journey towards achieving the SDGs.
• Despite 2020-21 being a pandemic year, India performed well on eight of the 15 SDGs measured by the NITI Aayog SDG India Index.
• These included – goal 3 (good health and well-being), goal 6 (clean water and sanitation), goal 7 (affordable and clean energy), goal 10 (reduced inequalities), goal 11 (sustainable cities and communities), goal 12 (responsible consumption and production), goal 15 (life on land) and goal 16 (peace, justice, and strong institutions).

PERFORMANCE OF STATES AND UTS ON THE NITI AAYOG SDG INDIA INDEX, 2021

• The number of Front Runners (scoring 65-99) increased to 22 states and UTs in 2020-21 from 10 in 2019-20. All remaining states and UTs were Performers (scoring 50- 64).
• Amongst states, additions to the Front Runner category in 2020-21 included Uttarakhand, Gujarat, Maharashtra, Mizoram, Punjab, Haryana, and Tripura. Amongst us, additions to the Front Runner category included Andaman and Nicobar Islands, Delhi, Jammu and Kashmir, Ladakh, and Lakshadweep.

STATE OF THE ENVIRONMENT

• Sustainable development requires balancing rapid economic growth with conservation, ecological security, and environmental sustainability. This section explores the state of the environment across the land, water, and air.

LAND FORESTS

• Russia, Brazil, Canada, USA, and China were the top five largest countries by forest area in 2020, while India was the tenth-largest country by forest area.
• The top 10 countries account for 66 percent of the world’s forest area.

• Forests covered 24 percent of India’s total geographical area accounting for two percent of the world’s total forest area in 2020.
• India has increased its forest area significantly over the past decade. It ranks third globally in an average annual net gain in forest area between 2010 to 2020, adding an average of 2,66,000 ha of additional forest area every year during the period, or adding approximately 0.38 percent of the 2010 forest area every year between 2010 to 2020.
• Madhya Pradesh (11 percent of India’s total forest cover) had the largest forest cover in India in 2021, followed by Arunachal Pradesh (9 percent), Chhattisgarh (8 percent), Odisha (7 percent), and Maharashtra (7 percent).
• Mizoram (85 percent), Arunachal Pradesh (79 percent), Meghalaya (76 percent), Manipur (74 percent), and Nagaland (74 percent) were the top five states in terms of the highest percent of forest cover w.r.t. total geographical area of the state in 2021

PLASTIC WASTE MANAGEMENT AND ELIMINATION OF IDENTIFIED SINGLE-USE PLASTICS

• India is committed to mitigating pollution caused by littered single-use plastics.
• In 2018, the Hon’ble Prime Minister announced that India would phase out single-use plastic by 2022.
• The Hazardous and Other Wastes (Management and Transboundary Movement) Rules, 2016 as amended regulate the import of identified plastic waste into the country by SEZ and EOUs.
• The regulation of import of plastic waste prevents dumping of plastic waste by other countries in the country and allows for recycling of plastic waste generated in the country.
• The following domestic regulatory actions have been taken in 2021:
• In August 2021, the Ministry of Environment, Forest and Climate Change, Government of India, notified the Plastic Waste Management Amendment Rules, 2021 prohibiting identified single-use plastic items, which have low utility and high littering potential, by 2022.
• The plastic packaging waste, which is not covered under the phase-out of identified single-use plastic items.
• In October 2021, the Ministry of Environment, Forest, and Climate Change notified the draft Regulations on the Extended Producer Responsibility for plastic packaging under Plastic Waste Management Rules, 2016.

WATER

GROUNDWATER

• Ground Water Resources Assessment of states/UTs is carried out jointly by state groundwater/ nodal departments and Central Ground Water Board at periodic intervals, and the Dynamic Ground Water Resources of India is published by compiling the state/UT wise groundwater resources assessed.
• Such groundwater assessments have been undertaken in 2004, 2009, 2011, 2013, 2017, and 2020.
• The annual groundwater recharge, annual extractable groundwater resources, annual groundwater extraction, and the stage of total groundwater extraction of India during 2004-2020.
• Overall, the annual groundwater extraction has been in the range of 58-63 percent during this period.

RESERVOIRS

• Reservoirs are an important source of water resources for the country. However, they are particularly prone to seasonality and are greatly impacted by rainfall and temperature patterns.
• The capacity at full reservoir levels in 138 monitored reservoirs of India along with the live storage during June-December 2021, June 2020–May 2021, and the ten-year average during June – May.
• It may be seen that reservoir live storage is at its peak during monsoon months and lowest in summer months, requiring careful planning and coordination of storage, release, and utilization of reservoirs.

RIVERS

• The Ganga River Basin is the largest in India, covering more than a quarter of the country’s land area, hosting about 43 percent of its population and contributing 28 percent of India’s water resources.
• The Government of India launched the Namami Gange Mission in 2014 as an integrated and multi-sectoral mission for the conservation of Ganga and its tributaries.

Namami Gange Mission

• The total expenditure incurred under the Namami Gange Mission from 2014-15 to December 2021. Lower expenditure incurred in 2020-21 and 2021-22 needs to be viewed in the context of the COVID pandemic and recent changes in accounting norms.

• Under the Gyan Ganga (Research and Knowledge Management) component, the Ganga Knowledge Centre was set up to create a state-of-the-art center to support the NMCG and create a comprehensive knowledge base on Ganga.
• The Centre for Ganga Management & Study was set up at IIT Kanpur for long-term basin studies and technology development.

AIR

• The Government of India launched the National Clean Air Programme (NCAP) in 2019 to tackle the air pollution problem comprehensively, with a target to achieve 20-30 percent reduction in particulate matter (PM) concentrations by 2024 across the country keeping 2017 as the base year for the comparison of concentration.
• The NCAP is implemented in 132 cities, of which 124 cities have been identified based on non-conformity with national ambient air quality standards for five consecutive years.
• This includes 34 million-plus cities / urban agglomerations identified by the Fifteenth Finance Commission (XV-FC).
• In addition, NCAP also covers eight other million-plus cities, which fall under the XV-FC grant for receiving performance-based grants for air quality improvement. Figure 26 shows the funds released under the NCAP in 2019-20 and 2020-21.
• In 2019-20, the highest funds were released to Uttar Pradesh, followed by Maharashtra and Madhya Pradesh while in 2020-21, the highest funds were released to Andhra Pradesh, Punjab, and West Bengal.
• Several steps are being taken to control and minimize air pollution from various sources in the country, which inter alia include:
• Vehicular Emission: India has leapfrogged from BS-IV to BS-VI norms for fuel and vehicles since April 2020.
• Industrial Emission: Stringent emission norms for coal-based thermal power plants have been introduced.
• Air Pollution due to dust and burning of waste: Six waste management rules covering solid waste, plastic waste, e-waste, bio-medical waste, construction, and demolition waste, and hazardous waste have been notified.
• Monitoring of Ambient Air Quality: The air quality monitoring network of manual as well as continuous monitoring stations, under programs such as the National Air Monitoring Programme, have been expanded.

AVERAGE ANNUAL AIR QUALITY INDEX, DELHI (2016-2021)

CLIMATE CHANGE

India launched the National Action Plan on Climate Change (NAPCC) in 2008, establishing eight National Missions to advance action on the country’s climate priorities.

NATIONAL MISSIONS UNDER NAPCC

MAJOR DECISIONS AT THE COP26 CLIMATE SUMMIT, GLASGOW

• The COP26 adopted outcomes on all pending issues of the “Paris Rule Book”, which is the procedures for implementation of the Paris Agreement, including market mechanisms, transparency, and common timeframes for NDCs.
• The “Glasgow Climate Pact” emphasizes adaptation, mitigation, finance, technology transfer, capacity-building, loss, and damage.
• The decision urges the developed country Parties to fully deliver on the USD 100 billion mobilization goal urgently and through till 2025 and emphasizes the importance of transparency in the implementation of their pledge.
• COP26 also welcomed the launch of a comprehensive two-year Glasgow–Sharm el-Sheikh work program on the global goal of adaptation. The Glasgow Dialogue between Parties, relevant organizations, and stakeholders on loss and damage was established to explore the ways to fund loss and damage due to climate change.

India’s NDC and its voluntary commitment to enhanced climate action.

India submitted its Nationally Determined Contribution (NDC) under the Paris Agreement on a “best effort basis” keeping its developmental imperatives in mind. India committed to

1. Reduce the emission intensity of GDP by 33 to 35 percent by 2030 as compared to the 2005 level.
2. Create an additional carbon sink of 2.5 to 3 billion tonnes of CO2 equivalent through additional forest and tree cover by 2030.
3. Achieve about 40 percent cumulative electric power installed capacity from non-fossil fuel energy resources by 2030.

FINANCE FOR SUSTAINABLE DEVELOPMENT

DEALING WITH FINANCIAL RISKS ASSOCIATED WITH CLIMATE CHANGE:

To assess the progress of its regulated entities in managing climate risk, RBI is preparing a consultative discussion paper covering, inter alia,

1. Governance
2. Strategy
3. Risk management
4. Disclosure

AUGMENTING FINANCE FOR SUSTAINABLE DEVELOPMENT:

• India is actively contributing to the global efforts towards green finance.
• RBI joined the Central Banks and Supervisors Network for Greening the Financial System (NGFS) as a member on April 23rd, 2021, and has begun participating in the workstreams of the NGFS.

INDIA’S INITIATIVES AT THE INTERNATIONAL STAGE

Lifestyle for Environment (LIFE):

• In November 2021, the Hon’ble Prime Minister proposed a One-Word Movement in the context of climate: LIFE – Lifestyle for Environment, at the COP 26 in Glasgow.

International Solar Alliance (ISA):

• In November 2021, the Hon’ble Prime Minister launched the joint Green Grids Initiative One Sun One World One Grid (GGI –OSOWOG) at the World Leaders’ Summit in Glasgow.

Coalition for Disaster Resilient Infrastructure:

• India’s call for promoting disaster resilience of infrastructure through the Coalition for Disaster Resilient Infrastructure (CDRI) has been receiving global attention.
• Since CDRI’s launch in September 2019, its membership has expanded to 28 countries and seven multilateral organizations, with several member countries committing to provide technical assistance and financial resources.

Leadership Group for Industry Transition (LeadIT Group):

• LeadIT was launched by India and Sweden, with the support of the World Economic Forum at the UN Climate Action Summit in New York in September 2019, as one of the nine action tracks identified by the UN Secretary-General to boost climate ambitions and actions to implement the Paris Agreement.

CONCLUSION: Going forward, there is a need to further improve forest and tree cover. Social forestry could also play a significant role in this regard. States/UTs need to improve management of their groundwater resources through improving its recharge and by stemming its over-exploitation and preventing the critical and semi-critical assessment units from further worsening. There is a greater thrust on climate action following the announcement of India’s target of becoming Net-Zero by 2070. Climate finance will remain critical to successful climate action by developing countries, including India.

HIGHLIGHTS

• India’s overall score on the NITI Aayog SDG India Index and Dashboard improved to 66 in 2020-21 from 60 in 2019-20 and 57 in 2018-19.
• Number of Front Runners (scoring 65-99) increased to 22 States and UTs in 2020-21 from 10 in 2019-20.
• In North-East India, 64 districts were Front Runners and 39 districts were Performers in the NITI Aayog North-Eastern Region District SDG Index 2021-22.
• India has the tenth largest forest area in the world.
• In 2020, India ranked third globally in increasing its forest area from 2010 to 2020.
• In 2020, the forests covered 24% of India’s total geographical, accounting for 2% of the world’s total forest area.
• In August 2021, the Plastic Waste Management Amendment Rules, 2021, was notified which is aimed at phasing out single-use plastic by 2022.
• Draft regulation on Extended Producer Responsibility for plastic packaging was notified.
• The Compliance status of Grossly Polluting Industries (GPIs) located in the Ganga main stem and its tributaries improved from 39% in 2017 to 81% in 2020.
• The consequent reduction in effluent discharge has been from 349.13 million liters per day (MLD) in 2017 to 280.20 MLD in 2020.
• The Prime Minister, as a part of the national statement delivered at the 26th Conference of Parties (COP 26) in Glasgow in November 2021, announced ambitious targets to be achieved by 2030 to enable further reduction in emissions.
• The need to start the one-word movement ‘LIFE’ (Lifestyle for Environment) urging mindful and deliberate utilization instead of mindless and destructive consumption was underlined.

THE CONTEXT: As economic activity started showing signs of picking up in the second year of the pandemic, the global economy faced the fresh challenge of rising global inflation. COVID-19 related stimulus spending in major economies along with pent-up demand boosting consumer spending pushed inflation up in many advanced and emerging economies. The surge in energy, food, non-food commodities, and input prices, supply constraints, disruption of global supply chains, and rising freight costs across the globe stoked global inflation during the year.

RETAIL INFLATION

The retail inflation, as measured by Consumer Price Index-Combined (CPI-C) moderates to 5.2% in 2021-22 (April-December) from 6.6% in the corresponding period of 2020-21. The Survey also says effective supply-side management kept prices of most essential commodities under control during the year.

DOMESTIC INFLATION

Compared to many Emerging Markets and Developing Economies (EMDEs) and advanced economies, the Survey finds that Consumer Price Index – Combined (CPI-C) inflation in India has remained range-bound in the recent months, touching 5.2% in December 2021. This was possible largely because of the proactive steps taken by the Government for effective supply management.

GLOBAL INFLATION

• In 2021, inflation picked up globally as economic activity revived with the opening up of economies. Inflation surged from 0.7 % in 2020 to around 3.1 % in 2021 in the advanced economies. For instance, inflation in the USA touched 7.0 % in December 2021, the highest since 1982. In the UK, it hit a nearly 30 years high of 5.4% in December 2021. Among emerging markets, Brazil witnessed inflation of 10.1% in December 2021 and Turkey also saw double-digit inflation touching 36.1%. Argentina has been experiencing inflation rates above 50% during the last 6 months.

RECENT TRENDS IN RETAIL INFLATION

• Retail inflation, well within the target limits of 2% to 6%, declined to 5.2% as against 6.6% during April – December 2020-21. The Survey states that this was largely attributed due to the easing of food inflation. Food inflation, as measured by the Consumer Food Price Index (CFPI), averaged at a low of 2.9% in 2021-22 (April-December) as against 9.1% in the corresponding period last year.
• A “refined” Core inflation has been constructed to exclude the volatile fuel items. The items of “petrol for vehicle” and “diesel for vehicle” and “lubricants & other fuels for vehicles”, in addition to “food and beverages” and “fuel and light” have been excluded from headline retail inflation. Since June 2020, refined core inflation has been much below the conventional core inflation, indicating the impact of inflation in fuel items in the “conventional” core inflation measure.

DRIVERS OF RETAIL INFLATION

• Major drivers of retail inflation have been the “miscellaneous” and “fuel & light” groups. Contribution of miscellaneous increased to 35% in 2021-22 (April – December) from 26.8% in 2020-21 (April – December). According to the Survey, within the miscellaneous group, a subgroup of “transport and Communication” contributed the most, followed by “health”. On the other hand, the contribution of food & beverages declined from 59% to 31.9%.

“FUEL & LIGHT” AND “TRANSPORT & COMMUNICATION”

• Inflation in the above two groups for the period of 2021-22 (April – December) has been largely due to the high international crude oil, petroleum product prices, and higher taxes.

MISCELLANEOUS

• Apart from transport & communication; “clothing and footwear” inflation also saw a rising trend during the current financial year possibly indicating higher production and input costs (including imported inputs) as well as due to revival of consumer demand.

FOOD AND BEVERAGES

• “Oils and fats” contributed around 60% of “food and beverages” inflation despite having a weight of only 7.8% in the group. The demand for edible oils is largely met through imports (60%) and fluctuations in international prices have been responsible for the high inflation in this subgroup. Though India’s imports of edible oils have been the lowest in the last six years, in terms of value, it has increased by 63.5% in 2020-21 as compared to 2019-20.
• Inflation in pulses declined to 2.4% in December 2021from 16.4% in 2020-21.With an increase in area sown for Kharif pulses to a new high of 142.4 lakh hectares (as of 1^stOctober 2021) pulses inflation is on a downward trajectory.

RURAL-URBAN INFLATION DIFFERENTIAL

• The gap between rural and urban CPI inflation declined in 2020 as compared to the higher gaps witnessed from July 2018 to December 2019. The factor largely responsible for divergence, for brief periods, is the component of food and beverages.

TRENDS IN WHOLESALE PRICE INDEX-BASED INFLATION

• WPI inflation has shown an increasing trend and has remained high during the current financial year touching 12.5% during 2021-22 (April – December). The Survey describes that part of the high inflation could be because of a low base in the previous year as WPI inflation has been benign during 2020-21.

• Crude petroleum & natural gas subgroup under WPI has witnessed very high inflation and stood at 55.7% in December 2021. Within manufactured food products, edible oils were a major contributor.

DIVERGENCE BETWEEN WPI AND CPI-BASED INFLATION RATES

• The Survey attributes a host of factors for the divergence witnessed between the two indices. Some of them, amongst others, include the variations due to base effect, the conceptual difference in their purpose and design, the price behavior of the different components of the two indices, and lagging demand pick up. The Survey states that with the gradual waning of base effect in WPI its divergence in WPI and CPI inflation is expected to narrow down.

HOUSING PRICES

• The residential housing sector was also affected by COVID-19 induced restrictions through both supply and demand channels.
• Amidst initial COVID-19 restrictions, not only did the construction of new houses slow down but the launch of new housing projects also got delayed. With the loss of income, uncertainty about future income, and stay-at-home orders, home buyers delayed their housing purchases.
• During the second COVID-19 wave (April-June, 2021), transactions of housing properties were once again impacted adversely, but not as much as it was seen during the first COVID-19 wave (April-June, 2020).

PHARMACEUTICAL PRICING

• Several steps have been taken to ensure the affordability of drugs and medical devices. Ceiling prices for 355 medicines and 886 formulations were fixed for medicines under the National List of Essential Medicines, 2015 until 31 December 2021.
• Retail prices for approximately 1798 formulations were fixed under DPCO, 2013 till 31 December 2021.
• During the recent years, exercising extraordinary powers under DPCO, 2013 in the public interest, prices of coronary stents and knee implants have also been fixed.
• NPPA also capped the trade margin up to 30 percent on selected 42 anti-cancer non-schedule medicine on a pilot basis in February 2019.

LONG TERM PERSPECTIVE

• Given the importance of supply-side factors in having a predominance in the determination of inflation in India, certain long-term policies are likely to help. This includes changing production patterns which would lead to diversification of production of crops, calibrated import policy to address uncertainty, and increased focus on transportation and storage infrastructure for perishable commodities.
• Better storage and supply chain management is required to ensure availability in lean season and reduced wastages of horticulture and other perishable essential commodities to reduce the seasonal spikes in prices for consumers, glut for the farmers in times of good harvests due to lack of marketing infrastructure, resulting in distress sales.
• Effective utilization of the Agriculture Infrastructure Fund for investment in viable projects for post-harvest management infrastructure for perishable commodities can help improve agriculture infrastructure in the country.
• Schemes like Operation Green and Kisan Rail need to be exploited further to protect the interests of the farmers as well as the consumers.

HIGHLIGHTS

• The average headline CPI-Combined inflation moderated to 5.2 percent in 2021-22 (April-December) from 6.6 percent in the corresponding period of 2020-21.
• The decline in retail inflation was led by the easing of food inflation.
• Food inflation averaged at a low of 2.9 percent in 2021-22 (April to December) as against 9.1 percent in the corresponding period last year.
• Effective supply-side management kept prices of most essential commodities under control during the year.
• Proactive measures were taken to contain the price rise in pulses and edible oils.
• Reduction in central excise and subsequent cuts in Value Added Tax by most States helped ease petrol and diesel prices.
• Wholesale inflation based on the Wholesale Price Index (WPI) rose to 12.5 percent during 2021-22 (April to December).
• This has been attributed to:
• Low base in the previous year,
• Pick-up in economic activity,
• Sharp increase in international prices of crude oil and other imported inputs, and
• High freight costs.
• Divergence between CPI-C and WPI Inflation:
• The divergence peaked to 9.6 percentage points in May 2020.
• However, this year there was a reversal in divergence with retail inflation falling below wholesale inflation by 8.0 percentage points in December 2021.
• This divergence can be explained by factors such as:
• Variations due to base effect,
• Difference in scope and coverage of the two indices,
• Price collections,
• Items covered,
• Difference in commodity weights, and
• WPI being more sensitive to cost-push inflation led by imported inputs.