Prominent economists at the Business Standard BFSI Summit in Mumbai today (November 8) emphasised the critical role of food prices in India’s headline inflation, while they examined the combined impact of food inflation and US Federal Reserve policy on India’s economic trajectory. Speaking at a panel discussion titled ‘Fed or Food?’ they discussed the intricate interplay of domestic and global forces influencing India’s economic landscape.

       Speaking at the event, Soumya Kanti Ghosh, group chief economic advisor at SBI said, “We are looking at food, but also following the Fed. Climate disturbances and international events have shown us that trade can suffer due to disruptions like Covid-19, US elections, and geopolitical tensions, yet India’s currency has largely remained aligned with domestic fundamentals,” he said.

       Ghosh said targeting headline inflation, rather than allowing food inflation to blend into core metrics, would enable India to manage inflation with a balanced approach.

       Core versus headline inflation

       Discussing central bank strategies, Samiran Chakraborty, chief economist at Citigroup, said India’s inflation policies should prioritise domestic conditions. “There is a debate locally on how much focus should be placed on inflation versus growth, as our rates are not driven by the Fed,” he said.

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       Chakraborty supported the Reserve Bank of India’s (RBI) stance on targeting headline inflation, arguing that core CPI should remain distinct from food CPI. “Almost every country, except Japan and Thailand, uses headline inflation as the focus,” he observed, urging the RBI to uphold its stance amidst rising food prices and global pressures.

       Role of local factors in inflation dynamics

       Aditi Nayar, Chief Economist and Head of Research & Outreach at ICRA, underscored that local conditions such as food prices and rental costs play a decisive role in inflation expectations. “Growth-inflation dynamics within India supersede global trends, with food and rent making up significant portions of household expenses,” Nayar pointed out.

       She advocated for rate cuts to be based on domestic factors rather than alignment with the US Fed, highlighting that food prices remain a primary concern.

       Shifting global landscape and its implications

       Sachchidanand Shukla, group chief economist at L&T, stressed the need for Indian policymakers to stay adaptable in response to international developments. Reflecting on the recent US elections, Shukla said, “The US has crafted a powerful industrial policy interwoven with trade and geopolitical strategies. With the dollar as the global reserve currency, this policy mix has created a strong impact that central banks, including the RBI, must consider."

       The interplay of food, growth, and Fed policies

       Ila Patnaik, chief economist at Aditya Birla Group, spoke about the intricate relationship between food inflation, economic growth, and US Federal Reserve decisions. “When the RBI was tasked with inflation targeting, food was part of the basket, although it’s not directly controllable by the RBI,” she said.

       Patnaik recommended a cautious approach to managing US inflationary pressures and potential rate adjustments, particularly in light of recent US election outcomes. “It’s food, growth, and the US Fed right now – all indicators point to maintaining higher rates until we see greater stability.”

       The discussion at the BFSI Summit highlighted a common theme: while food inflation is a prominent factor in India’s economic policy, global influences, particularly from the US Fed, cannot be overlooked. The panelists agreed that careful navigation of these factors will be critical as India seeks economic stability in an interconnected world. Catch all special coverage of the Business Standard BFSI Summit 2024 here: BS BFSI Summit 2024

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