Inflation Saving Index Bonds!: The new way ahead!

, January 21, 2025, 0 Comments

inflation-saving-index-bonds-marketexpress-inThe Government of India has already taken multiple steps to control Food Inflation in India. Still, due to seasonal climate variations, sometimes, the same is beyond the control parameters. What is the Current Situation?
The cost of vegetables and staples has a significant impact on India’s overall rate of inflation because the food and beverages basket weighs around 50% in the CPI.

In November 2024, the All India Consumer Food Price Index (CFPI) year-on-year inflation rate was 9.04%. The inflation rate for rural areas was 9.10% and 8.74% for urban areas.

There exists a remarkable way of Inflation Saving Index Bonds by the Central banks of the World! What does it mean? (Citing below, the India Example) Imagine, an average Indian Family of 4, minimum spends 5000 Rupees per Month on Food e.g., Fruits, vegetables, and staples, some other inclusions. Note, the maximum spend is not even taken into consideration.
There exists a remarkable way of Inflation Saving Index Bonds by the Central Banks of the World! What does it mean? (Citing below, the India Example) Imagine, an average Indian family of 4, minimum spends 5,000 rupees per month on food (e.g., fruits, vegetables, and staples, with some other inclusions). Note, the maximum spend is not even taken into consideration.

What is the Suggestion? Let the GOI (Government of India) and RBI (Reserve Bank of India) fix a bar on food inflation at a monetary value of 3,100 rupees per month for a family of 4.

Why will the Central Bank and Government do so? The savings of 1,900 rupees per month by the average number of Indian families could be significant. As per World Population Review data, the Indian family count is 299.7 million, with an average family size of 4 people.

So, what becomes the total savings of total average Indian households per month on food inflation? 299.7 Million ≈ 299 million (for simplicity in calculation example).

The total monthly savings become: 1900 * 299,000,000 = 568,100,000,000 or 568.1 billion rupees.

What is the next step for further monetization of the said amount? The RBI or other central banks could issue Inflation Index Savings Bonds based on the direct savings of food inflation per month by all families for the same amount.

What is another highlight of this suggestion? The 568.1 billion rupees could be categorized into Inflation Index Savings Bonds. Based on this, high-powered money could be printed and added to the money supply per month.

How will this reach the average Indians? There are two answers:

First, the RBI and Indian public scheduled commercial banks (e.g., SBI) could collaborate. The RBI could grant reduced-rate lending to SBI (repo rate-based lending).

The same money, via SBI lending, comes into the banking transmission mechanism. For every 1 rupee in banking, the amount becomes 6.2 rupees via the banking money multiplier (Source: Unacademy for Money Multiplier).

This makes 568.1 billion rupees * 6.2 = 3,521.60 billion rupees.

What is the other additional benefit to Indian families? The saving of 1,900 rupees per family per month on food inflation allows the same 299 million families of size 4 to spend the savings on alternate opportunity cost-based expenditures. 1 rupee of spending becomes 0.99 rupees due to the revenue savings expenditure multiplier (Source: NIPFP Fiscal Multipliers, India).

This makes 1900 * 299 million * 0.99 = 562 billion rupees per month.

So, this means there exists a dual saving for the average Indian families: savings from Inflation Index Savings Bonds by RBI and GOI.

The Inflation Saving Index Bonds, as a policy recommendation, could benefit everyone.

Disclaimer: The Farmers Income is the first priority. MSPs for all crops , can increase not decrease.
Also, the Crop Insurance for their crops , the GOI can give immediate relief, by direct hedge.
The transportation subsidy by GOI, can be an additional step for farmers and retailers money gap hedge.Also, even for the retailers, there should be a way , of Cost Reduction , by direct Food Producer Organisations tie up.Already, several steps have been taken,by , Government in power in ruling states,and opposition led states too.

https://worldpopulationreview.com/country-rankings/number-of-households-by-country
Source:For Number of Households,average Indian Family size of 4.
https://www.nipfp.org.in/media/medialibrary/2013/09/WP_2013_125.pdf
Source: Fiscal Multipliers, India
https://unacademy.com/content/upsc/economy-notes/money-multiplier/
Source: Money Multiplier Concepts
https://www.moneycontrol.com/news/business/year-2024-sticky-food-inflation-and-stingy-consumption-12894652.html
https://mospi.gov.in/sites/default/files/press_release/CPI_PR_12dec24.pdf
CFPI/CPI Food Inflation November 2024