Persistent Food Inflation in India: Structural Failures in Market Management, Impacts on the Poor, and the Case for CPI Weightage Revision.....

Introduction

Food prices in India have remained stubbornly volatile and elevated despite repeated government interventions, posing a chronic challenge since independence but particularly acute since 2014 under successive NDA governments. Food and beverages constitute a dominant share of household budgets, especially for the poor, making inflation in this segment a direct determinant of living standards, poverty, and real wages. This essay examines why successive governments have failed to tame food prices, what this reveals about the management of India's food markets, the cumulative food inflation since 2014 (approximately 65-75% rise in prices), its implications for the poor's food consumption propensity and real wages, and whether these findings justify the sharp reduction in food weightage in the new Consumer Price Index (CPI) series with base year 2024 (based on 2023-24 Household Consumption Expenditure Survey, or HCES—close to the query's reference to 2023). Drawing on official data from the Ministry of Statistics and Programme Implementation (MOSPI), Labour Bureau, and economic analyses, the discussion underscores structural deficiencies that monetary and fiscal tools alone cannot resolve.

Why the Government Struggles to Control Food Prices and Implications for Food Market Management

The Indian government's inability to stabilize food prices stems from a mix of supply-side vulnerabilities, policy inconsistencies, and deep-rooted market fragmentation—issues persisting across administrations. Agriculture, contributing ~15-18% to GDP but employing ~45% of the workforce, remains heavily rain-fed: over 50% of net sown area depends on monsoons, leading to output shocks from erratic rainfall, heatwaves, and unseasonal events. For instance, 2022-24 saw vegetable and cereal spikes due to climate anomalies, pushing food inflation above 8% in peaks despite record buffer stocks. Supply chain inefficiencies exacerbate this: post-harvest losses for perishables (fruits, vegetables, milk) range 20-40% due to inadequate cold storage (only ~10% of required capacity) and poor logistics, with fragmented markets dominated by middlemen under the Agricultural Produce Market Committee (APMC) system inflating retail prices by 30-50% over farm-gate levels.

Policy responses—Minimum Support Price (MSP) for 23 crops, export bans (e.g., wheat 2022, non-basmati rice 2023), subsidies via PM-KISAN and PMFBY, and open market sales—have been ad-hoc and often counterproductive. MSP distorts cropping patterns toward rice/wheat (ignoring pulses/oilseeds, where import dependence exceeds 60%), while export curbs signal unreliability to global markets, discouraging private investment. Hoarding by traders, enabled by weak enforcement of Essential Commodities Act amendments, and global spillovers (e.g., edible oil/pulse price surges) further limit control. Monetary policy via RBI's inflation targeting (4% ±2%) is blunt for supply-driven food shocks, which account for 60-70% of CPI volatility.

This chronic failure reveals profound weaknesses in food market management: a highly fragmented, unorganized sector with smallholder dominance (average holding <1 ha), minimal value addition, and absent integration between production, storage, processing, and retail. Unlike efficient markets in the US or China (with contract farming and futures hedging), India's lacks scale, technology adoption (e.g., drip irrigation covers <10% area), and competition. Public distribution system (PDS) leaks (20-30%) and free foodgrain schemes (covering 80 crore under PMGKAY) mask but do not resolve underlying production and distribution inefficiencies. Overall, it signals policy paralysis favoring short-term populism over long-term structural reforms like agri-market liberalization (e.g., full implementation of farm laws repealed in 2021), massive infra investment (only 0.5-1% GDP on agri-logistics), and climate-resilient varieties. Without these, food prices remain a "persistent problem," undermining economic stability.

Cumulative Food Inflation Since 2014: Data and Calculation

Since April 2014 (when CPI became the official inflation measure with base 2012=100), food inflation—tracked via Consumer Food Price Index (CFPI)—has averaged 5.5-5.7% annually (per Trading Economics and MOSPI data from 2012-2026, with similar trends post-2014). Volatility is high: peaks of 9-14% during 2016-17 (pulses crisis) and 2022-23 (post-COVID and Ukraine war), dips to negative in late 2025 (-2.71% in Dec 2025 due to base effects and bumper harvests).To compute cumulative: Using compound growth, with average annual 5.7% over 11.5 years (mid-2014 to end-2025), the multiplier is (1.057)^11.5 ≈ 1.88, implying ~88% cumulative rise. More conservatively, aligning with MOSPI CFPI index trends (approximating from press releases: ~120-130 index in 2014 vs. ~195-205 by late 2025 on old base), the increase is 60-70%. For essentials: one analysis notes ~50% rise in key food items 2015-2022 alone; extending to 2025 with 7.3% avg FY2024-25 food inflation adds further. Official back-series for new CPI confirms food prices rose faster than non-food in most years, outpacing headline CPI (avg 4.5-5.5%). By Jan 2026 (new base 2024=100), CFPI stood at ~104, but linking factors show sustained erosion of purchasing power.

Implications for Poor's Food Consumption Propensity, Real Wages, and Broader Economy

High cumulative food inflation disproportionately burdens the poor, who allocate 50-60%+ of expenditure to food (Engel's law: higher for lower quintiles; rural poorest ~55-60% vs. national average declining to 47% rural/40% urban per HCES 2023-24). Propensity to consume food (marginal propensity) remains near 0.6-0.7 for bottom 40% deciles, meaning income gains are largely food-absorbed rather than saved/invested. This perpetuates nutritional insecurity: despite free grains, protein/fat/vitamin intake stagnates, with 35%+ children stunted (NFHS-5).Real wages have stagnated amid this. Labour Bureau Wage Rates in Rural India (WRRI) data show real rural wage growth <1% annually since 2014-15 (0.8% for male agri-labourers, near-zero for non-agri/construction; some periods negative). Nominal wages rose ~60% (e.g., rural male construction from ₹275/day in 2014-15 to ₹441 in 2024-25), but cumulative food inflation of 65-75% (plus overall CPI ~50-60%) eroded gains, yielding flat or declining real wages. Periodic Labour Force Survey corroborates: rural real daily earnings stagnant 2014-2023. For the poor (bottom 50 crore), this translates to squeezed budgets—higher food costs force cuts in quantity/quality, debt traps, or reduced non-food spending (health/education), deepening inequality and multidimensional poverty (despite MPI declines, food component lags). It also fuels wage-price spirals, as agri-wages (rising nominally) feed back into costs.Do Findings Support Reducing Food Weightage in New CPI (Base ~2023/2024)?The new CPI series (base 2024=100, from HCES 2023-24) slashes food & beverages weight from 45.86% (old 2012 series) to 36.75% (or 40.10% under comparable classification), with divisions at 36.75% combined. Housing/transport/misc rise correspondingly. Justification: Engel's law—rising incomes shift spending (rural food share fell 52.9% in 2011-12 to 47.04% in 2023-24; urban 42.62% to 39.68%), plus free grains reducing cash outlay. This aligns CPI with actual consumption, reduces volatility (food drives 60%+ of old CPI swings), and better reflects services economy for monetary policy.

However, findings on persistent food inflation and its regressive impact weakly support this reduction. For the poor (still ~47%+ food spend), lower weight understates their "true" inflation—e.g., during 2022 spikes, poor faced 1-2 pp higher effective inflation than headline. Real wages data shows erosion masked if CPI down weights food. Volatility persists (food averaged 5.7%, often exceeding headline), so reducing weight stabilizes macro indicators but risks policy complacency on agri-reforms. Partial support exists for representativeness and lower volatility aiding RBI targeting, but equity demands supplementary "food CPI" or higher weights for poverty lines/wage indexation. Data (70% cumulative rise vs. stagnant real wages) argues against over-reliance on reduced weight for vulnerable-group metrics.

India's inability to control food prices exposes systemic market mismanagement—supply fragility, infrastructural deficits, and policy short-termism—despite consistent political priority. Cumulative ~65-75% food inflation since 2014 has eroded real wages (near-zero growth) and strained the poor's high food propensity, entrenching vulnerability even as aggregate consumption shifts. The new CPI's food weight reduction (to ~37%) is data-driven and pragmatic for headline stability per HCES trends, yet the findings caution against it fully: persistent, regressive impacts demand complementary tools like targeted subsidies, agri-infra push (e.g., 2% GDP investment), market reforms, and dual CPIs. Without addressing root causes, food inflation will remain a drag on growth, equity, and welfare. Structural overhaul, not weight tweaks, is the imperative for sustainable price stability.

Trump's Tariff Whiplash: Arm-Twisting, Sudden Reversals, and the Hollow Promise to Poor Americans While Courting "Reliable" India.....

Donald Trump's second-term trade policy has been defined by a signature style: aggressive tariff threats designed to twist arms, followed by abrupt reversals or concessions once markets tremble or deals materialize. Marketed as "America First" reciprocity to revive manufacturing for working-class Americans and strengthen the economy for all, this approach has instead delivered economic uncertainty that disproportionately burdens poor households while offering selective advantages to wealthy interests and industries. Nowhere is the pattern more evident than in dealings with India—Trump's oft-praised strategic partner—where high-stakes coercion gave way to a February 2026 interim trade framework slashing U.S. tariffs on Indian goods from 50% to 18%. This transactional flip-flop, rooted in precedents from Trump's first term, exposes the policy's flaws: it fails to deliver sustained gains for poor Americans, enriches uncertainty for the broader economy, and treats even reliable allies as leverage points rather than stable partners. 

The hand-twisting playbook is clear. In April 2025, Trump unleashed "Liberation Day" reciprocal tariffs targeting dozens of nations, including India, initially at rates reflecting perceived imbalances and India's Russian oil purchases. Threats escalated to 25%, then 50% on Indian imports, framed as punishment for a $45 billion-plus trade surplus and defiance on energy sourcing. Indian experts, such as Indian Institute of Foreign Trade Vice Chancellor Rakesh Mohan Joshi, openly labeled these moves "arm-twisting" tactics to extract one-sided concessions like mandatory U.S. energy, aircraft, and defense purchases. Markets plunged; automakers and exporters lobbied intensely. Within days or weeks, reversals followed—much like the March 2025 pause on Mexico and Canada tariffs after Big Three automaker pleas, or the 90-day global pause lowering baseline rates while hiking China's. With India, the February 6, 2026, White House joint statement announced the shift: the U.S. would apply an 18% reciprocal rate on most Indian originating goods (textiles, apparel, chemicals, etc.), remove prior steel/aluminum duties on Indian aircraft parts, and grant preferential quotas. In return, India committed to eliminating or slashing tariffs on broad U.S. industrial, food, and agricultural products; addressing non-tariff barriers; and purchasing up to $500 billion in U.S. energy, technology, aircraft, and coal over five years—while reportedly curbing Russian oil buys. Trump hailed it as a "historic milestone" of "mutual interests," echoing his "Art of the Deal" narrative. Yet the whiplash—threaten ruin, extract concessions, declare victory—creates precisely the unpredictability businesses loathe. Supply-chain planning, reshoring investments, and export contracts become gambles rather than strategies. 

This volatility undermines Trump's stated goals for poor Americans. His rhetoric promised tariffs would resurrect manufacturing jobs in the Rust Belt, close trade deficits, and lift working families by forcing foreign producers to "pay" or relocate. Reality has been harsher. Tariffs function as a regressive consumption tax: low-income households spend a far higher share of income on imported or import-heavy goods like clothing, footwear, appliances, and food. The Institute on Taxation and Economic Policy estimates that, under sustained 2025 tariff levels, the bottom 20% of households (incomes under $29,000) face an effective tax increase equivalent to 6.2% of income—nearly four times the 1.7% burden on the top 1%. The Yale Budget Lab projects Trump's tariffs will push 650,000 to 875,000 more Americans into poverty by 2026 (0.2–0.3% of the population), including 150,000–375,000 children, as prices rise faster than the poverty threshold adjusts while wages stagnate for many. Manufacturing employment has declined by roughly 88,000–100,000 jobs since inauguration, per critics, despite rhetoric; retaliation from partners has hammered U.S. farmers and exporters, sectors employing many rural poor. Input costs for domestic producers (steel, components) have risen, offsetting any "protection." Far from a rising tide, the policy has inflated everyday prices without the promised blue-collar boom—echoing first-term findings where tariffs cost households thousands annually while job gains proved fleeting. 

Meanwhile, benefits skew toward the rich and select corporate interests. High-net-worth individuals and Wall Street weather volatility better through diversified portfolios, hedging, or even profiting from trading swings. Protected sectors like steel or certain manufacturers—often with wealthy ownership or lobbying power—gain temporary shields, while broad tax-cut extensions (renewing 2017 TCJA elements) deliver trillions in relief disproportionately to high earners and corporations. The rich pay less relative burden from tariffs precisely because they consume fewer tariffed necessities as a share of wealth. Policy exemptions or negotiated carve-outs further favor insiders. The result is widened inequality: poor families face higher grocery and clothing bills, while elites enjoy lower effective taxation and market opportunities amid chaos. Trump's own framing—that tariffs could eventually supplant income taxes—would exacerbate this regressivity, shifting the burden onto consumption by the masses. 

Turning to India as the "most reliable" trade partner highlights both the policy's transactional cynicism and a potential missed opportunity for stability. Trump has oscillated between praise ("great friend" Modi, "Howdy Modi" spectacles) and condemnation ("totally one-sided disaster," "tariff king"). Precedents abound: first-term steel/aluminum tariffs hit India, GSP privileges were revoked in 2019 over market access disputes, yet defense sales surged (Predator drones, helicopters), the Quad deepened against China, and Apple/Foxconn diversified production to India as a China alternative. Bilateral trade grew in services, pharma, and IT—sectors where India offers complementary strengths without the mercantilist aggression of Beijing. India’s 1.4-billion consumer market, English-speaking workforce, and democratic alignment make it a natural counterweight for resilient supply chains. The 2026 interim deal, while born of coercion, demonstrates feasibility: India opened markets on U.S. ag/tech goods and committed massive purchases, proving willing negotiation when not under duress. 

Yet treating even this reliable partner with repeated arm-twisting followed by reversal undermines long-term trust. India hedged toward Russia and Europe partly due to unpredictability; further coercion risks pushing New Delhi toward multi-alignment rather than deeper U.S. integration. A consistent, non-coercive partnership could deliver genuine wins: predictable U.S. exports of energy and aircraft creating American jobs (including for less-skilled workers), diversified manufacturing reducing China dependence, and shared tech/defense innovation benefiting U.S. workers across income levels. Instead, the whiplash signals that no partner is safe from sudden pressure—eroding the very reliability Trump claims to value. 

In conclusion, Trump's tariff tango of hand-twisting and sudden reversals has not advanced a coherent vision for poor Americans or broad prosperity. It has imposed regressive costs that swell poverty rolls, failed to spark sustainable manufacturing revival, and cushioned elites through selective protections and tax policy. Even the pivot toward India—America's most reliable major democratic trade partner, with decades of strategic precedents from Quad cooperation to production shifts—arrives stained by coercion rather than mutual strategy. True America First leadership would prioritize predictability, targeted investments in domestic skills and infrastructure, and stable alliances that deliver jobs without inflating costs for the vulnerable. Until then, the whiplash leaves working families bruised, the rich relatively insulated, and potential partners wary. Consistency, not chaos, is the real deal America needs.

 

Inflation, Real Wages, Incomes, and Poverty in Post-Independence India: Regime Comparisons and Persistent Challenges.....

Since India gained independence in 1947, inflation has acted as a stealth tax on the poor, eroding purchasing power especially for households that allocate 50-70 percent of their budgets to food and essentials, while nominal wage adjustments often lag behind price rises. High and volatile inflation exacerbates poverty by reducing real incomes, widening inequality in the inflation burden (with the poor facing higher effective rates due to food-heavy baskets), and disrupting savings and investment among vulnerable groups. Studies consistently show a positive correlation between inflation spikes and slower poverty reduction or even temporary increases in headcount ratios, as real wages for unskilled and agricultural labor suffer most. Over the decades, cumulative price increases have been dramatic—prices rose roughly 80-100 times between the early 1960s and 2024 on average annual inflation around 7 percent—yet the trajectory of real wages, per capita incomes, and poverty levels has varied sharply across economic regimes, revealing how policy frameworks, growth accelerations, and inflation management have shaped outcomes. Pre-liberalization socialist planning delivered modest nominal gains but was undermined by supply shocks and high inflation, while post-1991 reforms unleashed higher real growth that outpaced inflation in most periods, driving unprecedented poverty declines despite ongoing price pressures.

In the early post-independence decades under Nehru and the initial Congress-led socialist model (roughly 1947-1964), inflation remained relatively contained at around 4 percent annually on wholesale price indices, supported by planning and public investment in heavy industry and agriculture. However, real agricultural wages and per capita incomes grew very slowly at about 1-1.5 percent per year amid the so-called “Hindu rate of growth” of 3.5 percent GDP overall, with cumulative real GDP per capita rising only modestly (less than doubling in the first four decades). Poverty reduction was negligible or even reversed in some years due to population pressures and stagnant rural real wages, leaving extreme poverty rates above 50 percent into the 1970s. The Indira Gandhi eras (1966-1977 and 1980-1984) saw inflation surge to an average of 9 percent or higher, with dramatic spikes to 28.6 percent in 1974 triggered by oil shocks, droughts, and fiscal expansion; this volatility crushed real wages for the poor, as nominal agricultural labor earnings failed to keep pace, contributing to limited or stalled poverty alleviation despite Green Revolution gains in select regions. Cumulative inflation during these turbulent years multiplied prices several-fold, further entrenching poverty traps for landless laborers and urban informal workers whose real incomes barely rose.

The 1980s under Rajiv Gandhi brought some acceleration in growth to around 5.6 percent GDP and 3 percent per capita, with inflation averaging near 9 percent but real wage growth improving modestly at 2-3 percent annually in rural areas thanks to early liberalization hints and public spending. Yet cumulative effects remained constrained: real per capita incomes had grown only about 1.8 times from 1947 to the late 1980s, and poverty headcounts declined slowly from around 45-50 percent. The 1991 balance-of-payments crisis under the Narasimha Rao government marked a pivotal shift to liberalization, dismantling the License Raj and opening trade and investment. Inflation initially spiked to over 13 percent amid devaluation and adjustment but averaged around 9-10 percent in the early 1990s before moderating. Real wages for casual and agricultural workers began a sustained upward trend, nearly doubling in real terms between 1993-94 and 2011-12 according to National Sample Survey data, while real GDP per capita growth averaged 4 percent or higher annually. Poverty fell sharply from about 45 percent in the early 1990s to around 21 percent by 2011-12 on national lines, with extreme poverty (World Bank measures) dropping even faster as higher growth in services and industry outpaced population and inflation. Cumulative real income gains post-1991 were transformative, with per capita GDP in constant terms multiplying roughly four- to five-fold by the mid-2010s compared to the sluggish pre-reform era.

The Vajpayee-led NDA government (1998-2004) consolidated reforms with average inflation around 5 percent and steady growth near 6 percent, supporting continued real wage improvements and poverty reduction through infrastructure push and fiscal discipline. The subsequent UPA period (2004-2014) under Manmohan Singh delivered the highest growth phase, with per capita real incomes rising at over 6 percent annually in peak years, real rural wages accelerating sharply (often 5-7 percent yearly post-2007 aided by MGNREGA and construction boom), and cumulative poverty declines of over 100 million people lifted out. Inflation averaged 8.2 percent with food spikes later in the term, yet overall real gains dominated, as evidenced by doubled rural real wages over the broader 1993-2012 window and per capita GDP roughly doubling again in this decade alone. In contrast, the Modi-led NDA era since 2014 has featured the most stable and lowest inflation in decades—averaging 4.8 percent under formal inflation-targeting since 2016—with volatility minimized and food inflation better managed. Real GDP per capita growth has averaged around 5 percent (pre- and post-COVID recovery), contributing to further cumulative income multiplication (overall real per capita now over seven times 1960 levels). Multidimensional poverty indices show 250 million or more escaping deprivation between 2015-16 and 2022-23 per NITI Aayog, driven by direct benefit transfers, housing, sanitation, and electrification schemes that protected real consumption for the poor even as rural real wage growth slowed or stagnated in some analyses (near 0-1 percent annually in recent years amid agricultural distress and informal sector pressures). Cumulative inflation since 2014 has been milder than prior decades, preserving more of the nominal gains in wages and incomes for lower quintiles.

Across these regimes, the interplay is clear: periods of high inflation (pre-1991 socialist phases and occasional post-reform spikes) correlated with slower real wage growth and muted poverty reduction, as price rises disproportionately burdened the bottom 50 percent whose consumption baskets amplified effective inflation rates. Liberalization from 1991 onward shifted the balance, enabling cumulative real per capita income growth that far exceeded inflation in most subsequent intervals, with real wages rising substantially overall (doubling in key rural segments over two decades) and poverty plummeting from entrenched levels above 40 percent to single digits in extreme measures today. Recent stability under inflation targeting has further aided inclusion, though challenges persist in translating GDP gains into broad-based real wage acceleration amid structural shifts away from agriculture.

In conclusion, inflation has undeniably impeded poverty eradication in India by continually undermining the real value of wages and incomes for the poorest, yet the post-independence record demonstrates that sustained higher growth under liberalized regimes since 1991—coupled with targeted welfare and monetary discipline—has delivered net progress unmatched in the socialist era. Cumulative price escalation over seven decades has been immense, but the even larger multiplication in real incomes and the acceleration of poverty decline under reform-oriented governments highlight a clear lesson: managing inflation while prioritizing inclusive growth and wage-enhancing policies remains essential to ensure future gains reach every Indian household equitably.

 

The Virtuous Spiral: How Low Borrowing Costs Fuel Endless Economic Momentum.....

In an era where central banks wield unprecedented influence over global markets, a quiet revolution is unfolding in the political economy of growth. Low borrowing costs, often engineered through monetary policy, are not merely a temporary salve for sluggish economies but the catalyst for a self-reinforcing cycle that drives high supply, suppresses prices, boosts demand, and propels sustained expansion. This dynamic, rooted in the interplay between government intervention, corporate investment, and consumer behavior, challenges traditional fears of inflation and stagnation, suggesting instead a future where prosperity begets even lower costs of capital. As policymakers grapple with post-pandemic recoveries and geopolitical tensions, understanding this cycle offers a blueprint for engineering enduring booms.

At the heart of this phenomenon lies the mechanics of low interest rates, typically set by central banks like the Federal Reserve or the European Central Bank to stimulate activity during downturns. When borrowing becomes cheap, businesses flood the market with investments in production capacity, ramping up supply across sectors from manufacturing to technology. This surge in output naturally exerts downward pressure on prices, making goods and services more affordable for consumers. With lower prices comes heightened demand, as households and firms alike capitalize on the bargains, further accelerating economic growth. This growth, in turn, generates jobs, raises incomes, and bolsters tax revenues, creating fiscal space for governments to maintain or even deepen accommodative policies. The result is a virtuous loop: robust growth signals stability to lenders and investors, justifying continued low borrowing costs and perpetuating the cycle. Unlike vicious deflationary spirals that plagued economies in the past, this model hinges on balanced supply keeping pace with demand, preventing overheating while fostering innovation and efficiency.

Historical precedents abound, illustrating how this cycle has powered transformative eras of prosperity. In the postwar United States of the 1950s, the Federal Reserve maintained relatively low interest rates amid a backdrop of industrial expansion and subdued inflation.  As factories hummed with production fueled by cheap credit, supply boomed in automobiles, appliances, and housing, driving down costs for the burgeoning middle class. This affordability sparked unprecedented consumer demand, with household spending surging and unemployment dipping below 4 percent. The ensuing growth not only rebuilt a war-torn economy but also reinforced low borrowing costs, as strong fiscal health allowed the government to issue debt at minimal yields, sustaining the boom for over a decade. Similarly, during the dot-com era around 2000, low rates set by the Fed encouraged massive investments in technology infrastructure.  Tech firms scaled up supply through rapid innovation, slashing prices on computers and internet services. Demand exploded as businesses and consumers embraced the digital revolution, leading to full employment and productivity gains that kept inflation in check at around 1.9 percent. This growth feedback loop convinced markets of long-term stability, keeping borrowing costs depressed even as the economy peaked.

More recent examples underscore the cycle's relevance in today's political landscape. In the late 2010s, particularly 2018 and 2019, the U.S. economy exemplified this dynamic under a regime of near-zero rates post-Great Recession. With borrowing cheap, corporations invested heavily in supply chains and automation, holding inflation to 1.5-2 percent while unemployment hovered around 3.7 percent. Demand flourished through consumer confidence and export growth, creating a self-sustaining expansion that pressured the Fed to delay rate hikes, thus ensuring future low costs. On a global scale, China's rapid ascent in the early 2000s drew on similar principles, where state-directed low-interest loans flooded manufacturing sectors, boosting supply and exporting deflationary pressures worldwide. This not only lowered global prices but also ignited demand in emerging markets, fueling China's GDP growth above 10 percent annually and locking in low borrowing costs through accumulated reserves. Even in Europe, post-2014 negative interest rates by the ECB spurred supply in renewable energy and infrastructure, curbing prices and stimulating demand amid austerity debates, hinting at a cycle that transcends borders.

Yet, this cycle's political dimensions cannot be ignored, as governments play a pivotal role in its initiation and maintenance. Through fiscal stimulus paired with monetary easing—as seen in Keynesian approaches during crises—policymakers can ignite the loop, but sustaining it requires deft navigation of international trade, regulation, and inequality.  For instance, subsidies for green technologies in the EU have amplified supply in sustainable goods, keeping energy prices low and demand high, while reinforcing commitments to low rates for climate goals. However, risks lurk if supply lags, as evidenced by temporary disruptions like supply chain bottlenecks, which can briefly interrupt the flow. Nonetheless, when aligned, these elements create a political economy where growth dividends fund social programs, reducing populist pressures and stabilizing regimes.

In conclusion, the self-reinforcing cycle of low borrowing costs, abundant supply, subdued prices, vigorous demand, and resilient growth offers a compelling vision for the future of global economies. By drawing lessons from postwar booms, tech revolutions, and modern recoveries, policymakers can harness this dynamic to foster inclusive prosperity, ensuring that today's low rates pave the way for tomorrow's even lower ones. As the world navigates uncertainties from trade wars to technological shifts, embracing this virtuous spiral could transform potential stagnation into an era of unbounded potential.

Lowering Inflation Expectations to Safeguard India's Long-Run Employment Amid Surging Government Spending.....

In the bustling economic landscape of India as of February 20, 2026, the recent Union Budget for 2026-27 has ignited debates on how ambitious government spending plans intersect with persistent inflationary pressures and the quest for sustainable job creation. Finance Minister Nirmala Sitharaman unveiled a budget emphasizing fiscal prudence with a deficit target of 4.3% of GDP, while ramping up capital expenditure to 12.2 trillion rupees—a 11.5% increase from the revised 10.96 trillion rupees in 2025-26—to fuel infrastructure and domestic manufacturing. This comes against a backdrop of nominal GDP growth projected at 10% for the fiscal year, with real growth estimates hovering between 6.8% and 7.2%. Yet, as consumer price index (CPI) inflation ticked up to 2.75% in January 2026 under the new base year series, economists are cautioning that the real battle lies not in current price levels but in managing inflation expectations to protect long-term employment gains. With unemployment edging to 5% in January from 4.8% in December 2025, the political economy narrative underscores a critical choice: prioritize anchoring expectations over reactive measures to current inflation spikes, ensuring that India's growth story translates into enduring job security for its youthful workforce.

The interplay between government spending, inflation, and employment in India reveals a complex political economy where fiscal stimulus meets monetary discipline. The Reserve Bank of India (RBI), under its inflation-targeting framework adopted in 2016, has maintained the repo rate at 5.25% since its last cut in December 2025, signaling an end to easing amid revised inflation forecasts. For fiscal year 2025-26 ending March 2026, the RBI now projects average inflation at 2.1%, up slightly from earlier estimates due to precious metal price surges, with the fourth quarter expected at 3.2%. Projections for 2026-27 anticipate a climb to 4.3%, driven by normalizing food prices and base effects, though core inflation remains subdued at around 3.9%. This moderation follows a period of ultra-low inflation averaging 1.7% from April to December 2025, aided by easing food and fuel costs. However, the budget's push for higher spending—total outlay rising to 53.47 trillion rupees from 49.65 trillion in the previous revised estimate—raises questions about potential demand-pull pressures. Government initiatives like the Purvodaya scheme for eastern industrial corridors and enhanced public infrastructure via entities such as InvITs and REITs aim to boost productivity and create jobs, but without careful calibration, they could inadvertently stoke inflation if expectations remain unanchored.

At the heart of this discourse is the distinction between current inflation and inflation expectations, a nuance often overlooked in political rhetoric but pivotal for long-run employment. Current inflation, as measured by headline CPI, stood at 2.75% in January 2026, returning to the RBI's 2-6% tolerance band for the first time since August 2025. This uptick was largely due to a 19.02% surge in personal care items influenced by gold and silver prices, while food inflation, now weighted at 36.8% in the revised CPI basket (down from 45.86%), rose to 2.13% from -2.71% the prior month.Yet, economists argue that focusing solely on these figures misses the bigger picture. Inflation expectations, as captured in RBI's household surveys, have historically exceeded actual inflation by 2-4 percentage points, with recent data showing three-month-ahead expectations at around 8-9% despite low realized rates. This gap persists because headline shocks, like food price volatility, feed into public perceptions, influencing wage negotiations and spending behaviors. Studies on India's Phillips curve—a relationship linking inflation and unemployment—indicate that unanchored expectations can lead to persistent inflation, necessitating tighter monetary policy that temporarily elevates unemployment.

From a long-run employment perspective, lowering inflation expectations emerges as more crucial than addressing transient current inflation spikes. Historical data reveals India's unemployment rate has trended downward, averaging 7.87% from 2018 to 2026 but dropping to a low of 4.7% in November 2025 before rising to 5% in January 2026. The Periodic Labour Force Survey shows rural unemployment at 4.2% and urban at 7.0%, with female joblessness notably higher at 9.8% in urban areas. Long-term trends are encouraging: the rate fell from 6% in 2017-18 to 3.2% in 2023-24, reflecting structural reforms like labor codes that boosted formalization and added over 10 lakh manufacturing jobs in FY24. However, research underscores a negative long-run link between inflation and growth in India, with thresholds around 5.5% where elevated inflation erodes output by 0.1-0.2 percentage points annually. High expectations amplify this: if households anticipate 7-8% inflation, they demand higher wages, pushing up costs and reducing firm hiring. This creates a vicious cycle, as seen in the 1970s global stagflation, where unanchored expectations led to wage-price spirals, ultimately harming employment.

In India's context, evidence from the RBI's inflation-targeting era shows that better-anchored expectations enhance policy flexibility. For instance, during the COVID-19 shock, anchored outlooks allowed aggressive stimulus without spiraling prices, supporting a rebound in employment from pandemic highs of 20.8% in 2020. Conversely, ignoring expectations risks "jobless growth," where GDP expands at 7% but unemployment lingers due to investor caution amid perceived instability. The budget's fiscal consolidation—debt-to-GDP targeted at 55.6% for 2026-27, down from 56.1%—complements this by avoiding overheating, but political pressures for populist spending, like rural guarantees, could undermine it. Analysts note that supply-side bottlenecks, exacerbated by global trade frictions, make expectation management vital; a 1% rise in inflation expectations could shave 0.5% off long-run growth, translating to 2-3 million fewer jobs annually in a labor force of over 560 million.

Politically, this pits short-term gains against long-term stability. The government's focus on "Viksit Bharat" envisions 7-8% growth creating 8-10 million jobs yearly, but opposition critiques highlight youth unemployment at 14.3% in Q4 2025. RBI Governor Sanjay Malhotra has emphasized that excluding volatile items like gold (adding 60-70 basis points to inflation) reveals "benign" underlying pressures, yet proactive liquidity measures are needed to preempt fluctuations. International comparisons bolster the case: economies like the US in the 1980s tamed inflation by credibly anchoring expectations, unlocking decades of job growth. In India, where inflation persistence is high— a 1% deviation from expected inflation adjusts expectations by only 0.1% quarterly—policy must prioritize communication and forward guidance over reactive rate hikes.

As India navigates this juncture, the imperative is clear: while current inflation at 2.75% demands vigilance, the true lever for containing it lies in lowering expectations through consistent policy. This not only prevents cost-push spirals but fosters an environment where government spending on capex yields multiplicative employment effects. With projections of 4% inflation in 2027 and unemployment trending toward 5.4%, anchoring expectations could add 1-2% to long-run growth, creating millions of jobs. In the political economy of a rising power, this strategy ensures that today's fiscal ambitions secure tomorrow's workforce prosperity, turning economic resilience into inclusive advancement. 

Anchoring Expectations: Prioritizing Inflation Forecasts Over Current Pressures to Safeguard US Long-Term Employment.....

In the evolving landscape of the US economy, where consumer spending drives nearly 70 percent of growth, the interplay between expected spending patterns and domestic inflation has taken center stage. As of February 2026, recent data reveals a cooling in headline inflation, with the Consumer Price Index rising just 2.4 percent year-over-year in January, down from 2.7 percent in December 2025.  This moderation, coupled with a slight dip in the unemployment rate to 4.3 percent, might suggest a stable short-term outlook. However, economists and policymakers are increasingly focusing on a subtler yet more potent force: inflation expectations. These forward-looking beliefs, shaped by households, businesses, and investors, hold the key to sustaining long-run employment gains, potentially outweighing the immediate concerns of current price levels in containing inflationary spirals.

The rationale stems from the self-reinforcing nature of inflation expectations. When consumers anticipate higher prices, they adjust behaviors accordingly—accelerating purchases or demanding wage hikes—which can embed inflation into the economy, leading to persistent pressures that erode purchasing power and force aggressive monetary tightening. For instance, the University of Michigan's February 2026 survey shows year-ahead inflation expectations easing to 3.5 percent from 4 percent in January, while long-run expectations ticked up slightly to 3.4 percent. This divergence highlights a risk: if long-term expectations drift upward, even amid current inflation at 2.4 percent, it could trigger a wage-price spiral, where workers seek compensation for anticipated cost increases, prompting businesses to raise prices further. Historical episodes, like the 1970s stagflation, underscore how unanchored expectations amplified inflation to double digits, ultimately requiring sharp Federal Reserve rate hikes that pushed unemployment above 10 percent and stifled growth for years.

From a political economy perspective, this dynamic intersects with fiscal policies influencing expected spending. Projections from the Congressional Budget Office indicate real consumer spending growth holding steady at 1.8 percent in 2026, bolstered by factors like wealth gains from a buoyant stock market and potential tax relief, but tempered by tariff-induced price hikes and slower population growth.  Yet, if inflation expectations remain elevated—say, above the Fed's 2 percent target—they could amplify these pressures, leading to reduced real spending and investment. Economists argue that anchored expectations allow the Fed greater flexibility to support employment during downturns without sparking runaway inflation.  For example, if expectations fall too low, nominal interest rates follow suit, limiting the Fed's ability to cut rates and stimulate job creation, potentially trapping the economy in a cycle of subpar growth. Conversely, taming expectations now could prevent the need for harsh measures later, preserving the 164.52 million employed Americans recorded in January 2026.

Data further illustrates the long-run employment stakes. Studies show that for every 0.1 percentage point rise in inflation expectations, achieving a 3 percent inflation target might require sacrificing up to 6 million jobs, pushing unemployment as high as 7.2 percent.  This is because elevated expectations steepen the Phillips curve, making small unemployment increases correspond to larger inflation drops, thus demanding more economic pain to restore stability.  In contrast, well-anchored expectations—ideally at 2 percent—enable softer landings, where the Fed can ease policy without igniting price surges, fostering sustained job growth. Amid political debates over Fed independence and fiscal stimulus, prioritizing expectation management through clear communication and credible policy could avert such costs, especially as consumer spending intentions for 2026 show resilience, with inflation-adjusted growth forecasted at 2.8 percent, supported by easier financial conditions and higher tax refunds.

Ultimately, while current inflation at 2.4 percent demands vigilance, the true linchpin for US long-run employment lies in curbing inflation expectations to prevent self-perpetuating cycles that undermine economic stability. By focusing on this forward-looking metric, policymakers can nurture a virtuous environment where steady job gains—potentially maintaining unemployment below 4.5 percent through 2036, per CBO estimates—coexist with price stability, ensuring broader prosperity without the scars of deeper recessions.

Seeds of Discontent: The Politics of Crop Pricing in India and the World.....

In the winter of 2020, the outskirts of Delhi transformed into a sprawling tent city as hundreds of thousands of farmers from Punjab, Haryana, and Uttar Pradesh descended upon the capital, their tractors forming barricades against the biting cold and police lines. These were not just cultivators of the soil but guardians of a way of life, protesting three new farm laws passed by Prime Minister Narendra Modi's government that September, which aimed to deregulate agricultural markets by allowing private buyers to negotiate directly with farmers outside the traditional mandi system. The laws, critics argued, would erode the safety net of minimum support prices, exposing smallholders to corporate exploitation and volatile market forces. The protests swelled to an estimated 250 million participants at their peak, marking one of the largest demonstrations in human history, and endured for over a year amid clashes, internet shutdowns, and over 700 farmer deaths from exposure and accidents. This movement, born from decades of agrarian distress including farmer suicides linked to debt and low incomes, forced the government to repeal the laws in November 2021, but it left lingering questions about how India prices its crops compared to developed nations and what system truly serves its farmers under unique socioeconomic pressures.

India's crop pricing revolves around the Minimum Support Price mechanism, a government-set floor price for 23 essential commodities like rice, wheat, pulses, and oilseeds, designed to shield farmers from market crashes and ensure food security. Established in the 1960s amid the Green Revolution, this system relies on the Commission for Agricultural Costs and Prices, which calculates MSP based on factors including production costs like seeds, fertilizers, labor, and family input, plus a 50 percent margin over the A2 plus FL formula, though experts like the Swaminathan Commission advocated for a more generous C2 plus 50 percent to cover comprehensive costs including land rent. The government procures crops at MSP through agencies like the Food Corporation of India, but this is unevenly implemented, benefiting mainly rice and wheat growers in states like Punjab and Haryana where procurement reaches 80 to 97 percent of production, while pulses and oilseeds see minimal uptake, often below 10 percent. In 2021-22, for instance, rice procurement was 44.5 percent of total production nationwide, but states like West Bengal saw only 14.3 percent. This leaves many farmers selling at market prices that can dip below MSP, contributing to average monthly household incomes of around 19,696 Indian rupees in 2024-25, or about 2,400 US dollars annually, far below the poverty threshold for many.  Political pressures amplify these issues, as seen in the 2020 protests where farmers feared the laws would dismantle MSP entirely, favoring conglomerates like Reliance and Adani, leading to boycotts of their telecom services and a surge in farmer unity across castes and regions.

In contrast, developed countries like the United States employ market-driven pricing bolstered by extensive subsidies and insurance, creating a stark divide in farmer prosperity. Under the US Farm Bill, renewed every five years with a 428 billion dollar budget for 2018-2023, growers receive counter-cyclical payments guaranteeing prices regardless of market dips, alongside crop insurance covering up to 85 percent of losses from weather or low yields. This has propelled average US farm incomes to over 100,000 dollars annually, with cereal yields at 7.6 tons per hectare compared to India's 3.7 tons, thanks to large-scale mechanization on farms averaging 178 hectares versus India's 1.08 hectares.  For example, in 2019, the US disbursed 16 billion dollars in direct payments under the Market Facilitation Program to offset trade war impacts, helping exporters like soybean farmers maintain global competitiveness against rivals in Brazil and Argentina. The European Union's Common Agricultural Policy allocates 58 billion euros yearly in direct payments and market support, representing 18.3 percent of farm receipts as producer support, far exceeding India's negative 14.5 percent producer support equivalent, which effectively taxes farmers through policies keeping domestic prices below international levels. In Canada and Australia, pricing is largely market-oriented with safety nets like export subsidies and risk management programs, yielding higher per capita farm incomes around 50,000 to 70,000 dollars, supported by vast lands and advanced tech that boost efficiency.

These global practices highlight India's unique challenges: over 50 percent of its workforce depends on agriculture contributing just 16 percent to GDP, with smallholdings, rain-fed farming, and infrastructure gaps leading to 30 to 60 percent lower yields than achievable benchmarks in Brazil or China.  In developed nations, subsidies per farmer dwarf India's; the US provides about 7 percent of agricultural value in support, while EU farmers receive 12.85 percent, enabling diversification into high-value crops and exports totaling 149 billion dollars for the US in 2019-23 averages.  India's system, while protective for staples, stifles innovation, as seen in eastern states like Bihar where incomes lag 50 percent below national averages due to poor procurement and market access.  Precedents like the 2020 laws' repeal show political will can shift, but protests underscored the need for balance; farmers in Punjab, earning 161 percent above national averages from MSP-backed wheat and rice, feared losses, while diversification in Meghalaya yields 187 percent higher incomes through high-value crops.

Under India's country-centric conditions—fragmented lands, monsoon dependency, and 260 million in rural poverty—a hybrid model emerges as optimal to benefit farmers, blending MSP guarantees with market freedoms to foster productivity and incomes. This approach retains price floors for food security staples like rice and wheat, where procurement stabilizes 37 percent and 17 percent of output respectively, while encouraging private investment in value chains for perishables like tomatoes or pulses, where market prices often exceed MSP but volatility persists.  Examples from protests' aftermath include the government's formation of an MSP committee, though slow progress fuels ongoing demands, and diversification successes in states like Karnataka where non-farm income boosts environmental efficiency by 4 percent per 1 percent rise, allowing reinvestment.  Data from 2018-19 shows livestock and non-farm activities already contribute 13 percent and 8 percent to farm incomes, suggesting hybrids could raise overall earnings by 29 percent through reforms like better insurance and tech access, mirroring US gains from 10 percent producer support.  Ultimately, this hybrid safeguards against distress while promoting growth, turning seeds of discontent into harvests of equity.