Horses, elephants, unicorns: Who does the RBI’s rosy outlook really describe?

The central bank claims victory over rising prices, but many Indians still struggle with costlier food and widening wealth gaps.

RBI governor Shaktikanta Das | Photo Credit: ANI

At its most recent monetary policy meeting, the Reserve Bank of India (RBI) announced that it would keep key rates unchanged and that both growth and inflation forecasts remained stable and robust. The inflation horse has been brought to the stable within the tolerance band, explained RBI governor Shaktikanta Das, and the Central Bank would need to be to be careful about opening the gate. It is a war against inflation and in wars, elephants and horses are used historically, he went to say.

Which is why elephants had now been swapped out for horses. And so, the RBI’s FY25 CPI inflation forecast remains unchanged at 4.5 per cent. On growth it is even more sanguine; the Central Bank chose to hold its FY25 GDP growth estimates at 7.2 per cent and even upped its expectations for the first quarter of the next financial year to 7.3 per cent from 7.2 per cent.  

Since the RBI governor has chosen an animal themed policy review, a unicorn could also be brought into the fold. A mythical animal most often represented as a horse with a single straight horn projecting from its forehead, used to convey something that is highly desirable but difficult to find. And it is to this unicorn we must turn and ask the question: who does the Central Bank speak for and of?

India’s manufacturing sector, which could be a powerful level for employment and improved prospects for the average citizen has seen growth decline to an eight-month low in September, marked by a slower pace of expansion in international orders and sales. Across the country, inventories of unsold vehicles have piled up to what industry representatives have called ‘alarming levels’. So much so that the Federation Of Automobile Dealers Associations fears even the ongoing festive season will not be a good enough catalyst to offset this sluggish demand and rising inventory levels. Commercial vehicle sales saw their fourth consecutive fall and the worst in over 40 months. GST collections last month only grew by 6.5 per cent, the weakest pace of expansion since June 2021 and air cargo traffic contracted for the second consecutive month.

Across the country, inventories of unsold vehicles have piled up to what industry representatives have called ‘alarming levels’.  | Photo Credit: VELANKANNI RAJ B

Turn to the fast-moving consumer goods industry that, according to NielsenIQ, in August, reported a sharp drop in volume growth in the food and non-food categories in the June quarter. Inexplicably, the drop is largely due to a slowdown in sales of packaged foods such as salt, flour and oil. Are households cutting back on these basic necessities in the kitchen, and if the answer is yes, is the Central Bank looking at why households across India are tightening their belts to a point of choking?

What has been added to this state of local disarray is a layer of worrying global complexity with the escalation of conflict in West Asia, where at this point, no one can predict what may happen next, or what the impact could be on global energy prices. What is certain is that there will be a knock-on effect on almost every aspect of the economy and household spending. The last cut in petrol and diesel prices happened ahead of the general election in March 2024; and with the Assembly elections in Jammu and Kashmir and Haryana now done, it seems unlikely there will be any immediate relief: there may, instead, be a rise in the cost of goods and services indirectly and even a more direct rise in retail fuel prices.

Here’s what makes the commentary by the RBI even more incongruous. The finance ministry, which is generally so quick to refute concerns around growth, wrote with a note of caution in its monthly economic review report for August about the “signs of weakness” in urban demand that warrant monitoring. Despite these signs of concern across the economy, the Central Bank chose to hold, and up its growth estimates.

There is a second, more disturbing element to the growth narrative. As IMF’s data bears out, in terms of overall GDP rankings, India ranks fifth in the world, following the US, China, Germany, and Japan. An impressive number until it is unpacked with what that means at an individual level. India’s GDP per capita is $2,730, which places us close to the 130th position, out of 200 countries. Research by the World Inequality Lab found that wealth concentrated in the richest 1 per cent of India’s population is at its highest in six decades. Data from Forbes billionaire rankings shows that the number of Indians with net wealth exceeding $1 billion rose from one in 1991 to 162 in 2022. By 2024 India has a record 200 billionaires and for the first time ever, ranks third globally in terms of the number of billionaires it boasts. How many families does that include, for a country with a population of approximately 1.43 billion people? And which growth parameters point to a course correction in this wide disparity?

Not just growth, the policy was also optimistic about inflation outcomes for the future. While many economists concur on the food inflation outlook and that it looks more balanced than it has in many months, in what must feel like a parallel universe, Crisil’s ‘Roti Rice Rate’ report found that the cost of a representative home-cooked vegetarian thali rose by 11 per cent on a year-on-year basis in September 2024. Vegetables, that make up about 49 per cent of that thali saw the biggest jumps: onions, potatoes, and tomatoes rose 53 per cent, 50 per cent and 18 per cent year over year. While this could be explained against lower onion and potato arrivals on the one hand, and heavy rainfall affecting the output of tomatoes on the other, the larger takeaway is this. It is no one’s case that food prices can be controlled in the short run, or that there is reason not to believe that we may have an easier run with food prices in the months ahead.

Vegetables, which make up about 49 per cent of our thalis saw the biggest jumps: onions, potatoes, and tomatoes rose 53 per cent, 50 per cent and 18 per cent year over year. | Photo Credit: SUSHIL KUMAR VERMA

But if food prices stay high for a long time, as they have done, that does imply there are not just constraints on the production side, but intense pressure on individual households that needs more attention. The government’s own Economic Survey from this year confirmed a doubling of food inflation in the last two years. India has been struggling to get a handle on the cost pressures that an average household faces, and food remains on top of that list.

The RBI’s policy announcement comes in the backdrop of two other events. A clear victory in Haryana, a State that seemed ridden by farmer agitation, unemployment and anti-incumbency, and thumbs down in Kashmir. There is a large amount of post-event analysis on how the BJP triumphed over what looked like a washout for them.

Hindsight is always 20/20 and there may be many cogent reasons behind this political win but it does not right a wrong. By the end of 2023, India’s richest citizens owned over 40 per cent of the country’s wealth, the highest since 1961. The trend in terms of inequality is clear; a miniscule section of India corners a staggeringly large amount of the country’s wealth. Growth has meant very different things for India’s wealthy minority than it has for its struggling majority. It is indeed incredible that the country’s Central Bank has chosen neither to speak of this income and wealth inequality, nor to acknowledge it, in their many monetary policy gatherings.

This could also be the penultimate policy meeting for the RBI chief. In December 2021, he was given a three-year extension, which comes to an end in December 2024. It is unclear yet, whether Das will see another extension. Many of his peers leading other institutions have been speaking of the legacy they leave behind. On the two critical pillars of growth and price rise, how will the Central Bank governor judge himself? More importantly, how will the people?

Mitali Mukherjee is Director of the Journalist Programmes at the Reuters Institute for the Study of Journalism, University of Oxford. She is a political economy journalist with more than two decades of experience in TV, print and digital journalism. Mitali has co-founded two start-ups that focussed on civil society and financial literacy and her key areas of interest are gender and climate change.