The Reserve Bank of India (RBI) announced the launch of the 25th Round of Inflation Expectations Survey of Households on August 30, 2011. This survey has been conducted by the RBI since September 2005 on a quarterly basis. The primary objective of this survey is to find out at what rate households think that future prices will rise or fall. Recently (September 2010), the survey has begun to also gather information regarding awareness of households on RBI’s monetary policies which tackle inflation. One of the major uses of these survey results is that they are used as “important inputs to the monetary policy formulation.” Since the role of controlling inflation has been assigned to RBI, it is important that we know the basis on which some of these policies are formulated. Moreover, since inflation affects both producers and consumers, it is in our interest to ensure that RBI frames appropriate monetary policies.
Given this, it is shocking to notice that although monetary policy affects the whole of India, RBI’s Inflation Expectations Survey only target urban households. The recently completed Census tells us that about 69% of Indians live in rural areas and only about 31% live in urban areas. Yet another problem with this survey is that it does not take into account the inflationary expectations of the sector which provides employment to the majority – agriculture. The profiles of respondents of the previous survey (Round 24) are: housewives, self-employed, other employees, financial sector employees, daily workers, retired persons and other categories. One of the few merits of this survey is that the target share assigned to housewives is the largest (30 percent).
The omission of rural India and agricultural workers from this Survey needs to be questioned. In fact, it is a recent phenomenon in the history of the world that inflation measurement and management is largely undertaken by a single entity. Prior to this, cost of living was calculated so that workers and firms could make adjustments to their wage demand and production decisions respectively. Today, RBI uses inflation management as a part of India’s broader macroeconomic objectives. Therefore, given the power wielded by RBI via changes in lending and borrowing rates, which have far-reaching effects across India, such a survey with a very narrow outlook needs to be questioned.
Given this, it is shocking to notice that although monetary policy affects the whole of India, RBI’s Inflation Expectations Survey only target urban households. The recently completed Census tells us that about 69% of Indians live in rural areas and only about 31% live in urban areas. Yet another problem with this survey is that it does not take into account the inflationary expectations of the sector which provides employment to the majority – agriculture. The profiles of respondents of the previous survey (Round 24) are: housewives, self-employed, other employees, financial sector employees, daily workers, retired persons and other categories. One of the few merits of this survey is that the target share assigned to housewives is the largest (30 percent).
The omission of rural India and agricultural workers from this Survey needs to be questioned. In fact, it is a recent phenomenon in the history of the world that inflation measurement and management is largely undertaken by a single entity. Prior to this, cost of living was calculated so that workers and firms could make adjustments to their wage demand and production decisions respectively. Today, RBI uses inflation management as a part of India’s broader macroeconomic objectives. Therefore, given the power wielded by RBI via changes in lending and borrowing rates, which have far-reaching effects across India, such a survey with a very narrow outlook needs to be questioned.
University of Sydney, alexmthomas@gmail.com,
