Inflation, or “Mehengai,” is a term that often sends shivers down the spine of any economy, especially when it skyrockets. High inflation rates can strain both the pockets and patience of citizens. So, it’s pretty impressive when a leader manages to keep it under wraps. This is the tale of Prime Minister Narendra Modi, whose tenure has been marked by what appears to be an exceptional control over inflation rates in India.
Now, if you’ve been keeping an ear out for the opposition’s views, you might have been led to believe that inflation management under PM Modi has been less than stellar. But the people of India continue to re-elect him. The opposition says it’s just Modi’s magic of marketing, almost looking like they are scurrying for convenient reasonings and do not know the ground realities.
On the other hand, it is noteworthy that since 2014, ‘Mehengai’ or high prices have almost disappeared from election campaigns. For a country that has battled with persistent inflation, that’s no small feat.
So, really, how good is PM Modi’s Inflation Management?
Looking at the Data
To get to the bottom of this, I put on my detective hat and dove into records stretching back to the time of India’s independence in August 1947. Thanks to various databases such as EPW Foundation, IMF, MOSPI-GOI, and the Reserve Bank of India’s Monthly Bulletins, I was able to line up the inflation figures under different Prime Ministers of India for a comparative analysis.
And what do you know? PM Modi has emerged with the best record on inflation compared to all other Prime Ministers of India. This probably explains why ‘Mehengai’ has taken a backseat in the minds of the voters for last 10 years. The data is represented in the chart below:
The table represents the average inflation rates during the time each Prime Minister of India was in office. We have used both the Price Indexes that are used in Inflation: WPI (Wholesale Price Index) and CPI (Consumer Price Index). WPI measures the price increase at a wholesale level, which is the price stores pay when they buy large amounts of products. CPI measures the price increase of a basket of goods and services that retail households typically use, such as food, transport, etc.
The reason both have been used is that till 2012, inflation in India was taken based on WPI. Post 2012, it has been measured in CPI. Also, For PM Nehru, the CPI numbers were unavailable as CPI was not measured during his tenure. So, for the sake of complete comparison, we used both inflation data.
As can be seen, PM Modi tops the chart in both numbers! At an average WPI inflation rate of 3.1%, he has done better than even PM Nehru, who has the same rate of 4.13%. He has done far better than the Economist PM Manmohan Singh who had 6.54% in WPI and 8.27% for CPI. That is almost double that of PM Modi, who has a WPI of 3.1% and CPI inflation of 5.03%. Other Congress PMs also have pretty high numbers. Indira Gandhi is at 9%! Rajiv Gandhi at 8%!
In fact, PM Modi’s inflation management is so exceptional that at 5.03% CPI Inflation, it is exactly in the middle of the RBI target of 4% to 6% inflation.
A quick address to doubters who might say that global factors impact inflation or Central Banks control inflation – at the end of the article, I have added a graph of India’s inflation vis-a-vis global top economies. And you see, there, too, PM Modi has outperformed other PMs of India. Also, the data shows that there is a stark difference in inflation numbers from PM to PM. In fact, as soon as UPA took over, inflation started increasing, and as soon as PM Modi came, inflation went down. This shows that PM and Government have a large role in Inflation dynamics.
How Did PM Modi Manage it
You might think this is all just good fortune, but the reality is far from it. Even when the pandemic rattled the world, India’s inflation didn’t hit the dreaded double digits, despite several countries of the world suffering multidecade high Inflation numbers. In fact, in 2022, the US had higher inflation than India, a rarity.
So, how did PM Modi pull this off? The magic lies in a mix of savvy economic strategies.
First, he spearheaded the cleanup of supply chain inefficiencies, introducing reforms like the Goods and Services Tax and integrating digital processes. Prior to GST reforms, trucks used to wait at each state’s border for days on end. Delay, huge fuel cost, and over and above that, bribe at every naka. With GST, all this went away. The delivery of goods became faster and cheaper. Less fuel was consumed, too. This effectively led to lower consumption of oil in the economy for each unit of production, known as the Oil intensity of an economy. India has seen an increasingly low oil intensity since 2014. So, despite the increase in oil prices, the impact on inflation was muted. A massive push toward renewables also helped in that.
But PM Modi didn’t stop there. Social justice through direct benefit distribution is fundamental in a large country like India. Modi Schemes are well known for that, and are in fact touted as a reason why PM Modi returned to power in 2019 with an increased Majority.
But that’s half of the story. Some earlier governments, including PM Singh, also focused on benefit distribution. But, they focused only on benefit distribution! And that is problematic. See, if you only distribute money but do not focus and increase the production capability of the economy, things will quickly become expensive, and Mehengai, so to say, will rise because now the same number of goods in the economy is being chased by more money! This will end up short-circuiting all the distributive justice as increased money in hand becomes worthless due to increased prices. For every increase in social distribution, one must increase the production as well.
That’s where UPA 2 and PM Singh failed, but PM Modi excels. He not only has Modi Schemes for the poor, giving them Direct benefits but also encourages Industry and has Modi Schemes for Industries, such as Production Linked Schemes (PLI). He, therefore, focused equally on distribution and production – the work of a true economist!
It must also be noted that Prime Minister Modi’s policies favor in-kind benefits over cash handouts, such as directly giving food, rather than cash to buy food, or money in exchange for building houses etc. This in-kind approach allows the government to ensure that assistance reaches the intended recipients in the most direct manner possible. Furthermore, it aids in the government’s inflation control efforts. By providing goods and services directly, the government can prevent demand-driven price increases, helping to keep inflation in check.
In the world of economics, where numbers often tell the complete story, these inflation rates under PM Modi’s tenure are speaking volumes. It seems the lower inflation rates aren’t just a fluke; they’re a testament to strategic economic planning and policies that have effectively managed inflation in India. Even in economics, PM Modi seems to be outdoing great erudite PMs of old India.
