'RBI should not...': Infosys' former CFO Mohandas Pai draws attention towards food inflation 

RBI MPC meeting: Prior to the RBI MPC announcement on the revision of the repo rate, Infosys' former CFO Mohandas Pai asked the new Governor Sanjay Malhotra to consider food inflation and consumers.

The Reserve Bank of India's (RBI) six-member Monetary Policy Committee (MPC) is expected to decrease the repo rate by 25 basis points (bps) during its upcoming meeting from February 5 to 7. This will be the first rate cut in nearly five years, after maintaining it unchanged for two years. Analysts predict that the RBI will maintain a neutral monetary policy stance. 

Taking to social media platform X, Pai said the central bank should look into the prices of basic vegetables - tomato, onion and potatoes. It is to be noted the cost of a vegetarian thali has gone up considerably in 2024  as tomato and potato prices continued to pinch Indian households.

A report by rating agency Crisil, released on January 6, revealed that in December 2024, the price of a vegetable thali had increased by 6% compared to the previous year. This rise was primarily driven by the escalating costs of tomatoes and potatoes, which have been putting financial strain on Indian households. These two vegetables, accounting for 24% of the total cost of a home-cooked meal, have been experiencing inflation rates in the double digits.

The report stated that tomato prices had surged by 24% to Rs 47 per kilogram from the previous year, while potato prices had skyrocketed by 50% due to a 6% decrease in production.

Pai wrote on X: "Great expectations from new Governor. @RBI should not punish consumers by high interest rates to control Tomato, Onion. Potato prices ( TOP)."

Food inflation

The recently released Economic Survey for 2024-25 on January 31 highlighted an increase in food inflation, as measured by the Consumer Food Price Index (CFPI), from 7.5% in FY24 to 8.4% in FY25 (April-December). This rise was mainly attributed to a few food items, notably vegetables and pulses.

Retail inflation in India, as gauged by the Consumer Price Index (CPI), averaged at 5.4% during FY25 (April-December). Although this figure stayed below the Reserve Bank of India's (RBI) upper tolerance level, it exceeded the central bank's desired threshold of 4%. Notably, food inflation surpassed 8% at various intervals, primarily due to disruptions in the supply chain impacting essential commodities such as onions, tomatoes, and pulses.

According to the survey, agricultural output was greatly affected by extreme weather events. Tomato prices surged by 37% in peak summer due to heatwaves, while onion prices remained 20% higher than their five-year average following unseasonal rainfall in key growing regions. The survey also highlighted a 15% rise in crop area damage over the past three years due to unpredictable weather conditions, exacerbating food price pressures.

Inflation excluding food and fuel decreased to 4.1 per cent, but service-related inflation in housing, healthcare, and education saw a continued upward trend. Housing rents climbed by 12 per cent, while healthcare expenses rose by 6.5 per cent. The surge in costs was linked to robust urban demand, wage increases, and disruptions in the supply chain of essential medical items, according to the survey.

In FY25 (April-December), vegetables and pulses, constituting 8.42% of the CPI basket, played a significant role in driving overall inflation, accounting for 32.3% of the increase. The exclusion of these items would have resulted in a food inflation rate of 4.3%, which is 4.1 percentage points lower than the reported figure. Likewise, removing vegetables and pulses from the calculation would have lowered the overall inflation rate to 3.2%, a decrease of 1.7 percentage points from the actual figure.