Central government and state governments must work together to bring inflation down, says FM

States and the federal government must work together to combat inflationary pressures, according to Finance Minister Nirmala Sitharaman. At a conference on controlling inflation sponsored by the Indian Council for Research on International Economic Relations, Sitharaman said: “Now, if state inflation is also to be attributed to the Indian government, we must establish a mechanism in which we work together to address inflationary concerns” (ICRIER).

According to her, there have been several conversations regarding the decentralization of taxable income, and similarly, there are enough reasons to understand how governments also control their inflation.

It seems implausible that the Center is the only entity responsible for inflation management. And when states do not do enough, this region of India suffers from the lack of a solution to the pressure caused by inflation. External variables impact both the federal government and the states, according to Sitharaman.

Despite the Goods and Services Tax (GST), which opened up a single market, eliminated tolls and levies, and allowed freer movement of goods, inflation rates vary from state to state across the country.

She said when fuel prices rose globally, the central government twice cut the cost of items and gasoline wherever possible. “Now, very recently, information generally available in the public domain demonstrates how much inflation has differed from state to state. There could be various causes. However, the reality remains that, strangely, in the States where gasoline costs have not fallen, I see inflation above the national average inflation.

According to her, this demonstrated that the movement of food grains and other food-related products has really affected the price of these products, which constitute the majority of the CPI. According to Sitharaman, India’s approach to managing the economy, which also includes managing inflation, has used both fiscal and monetary policy.

“Monetary policy, which has been utterly ineffective in many countries, cannot be relied upon alone to solve the problem. And these are nations whose economic systems form the basis of the idea that the best way to control the inflation is by interest rates, according to Sitharaman.

She said managing inflation in India involves a variety of strategies, most of which, even in the current environment, fall outside monetary policy.

She said a variety of variables influence how India handles inflation. The central bank, its tools and its management of interest rates are extremely important components, but they cannot be the only ones, according to her.

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