The link between inflation and climate change

Source– The post is based on the article “The link between inflation and climate change” published in The Indian Express on 3rd October 2022.

Syllabus: GS3- Indian economy

News– The article explains the inflation scenario for the Indian economy.

What are the risks for higher inflation?

Rupee is depreciating.

Grain stocks are fast depleting.

Adverse weather conditions due to climate change.

What are the prospects for the Indian Rupee?

Increase in interest rate by the US Federal Reserve will depreciate Indian Rupee.

The depreciation will lead to imported inflation through crude oil, gas and fertilizer.

If RBI tries to keep Rupee artificially high, it will adversely affect Indian exports. It will widen the CAD. Widening of CAD will further put a pressure on Indian Rupee.

Rupee falling is going to continue for at least one year. Inflation in the USA is at a higher level. The US Federal Reserve will continue to increase interest rates for two to three years.

What is the scenario for grain stocks?

The Cabinet’s decision to extend the PM Garib Kalyan Ann Yojana by another three months will put pressure on grain stocks. It will lead to a higher fiscal deficit. Gujarat elections may further compel the government to extend it upto December.

Doubling the free ration under PM Garib Kalyan Yojana depleted the grain stocks. Wheat procurement has decreased. The Government will have to raise MSP to replenish the wheat stocks.

Rice stocks are ample. But an uneven Monsoon this year may lead to less than estimated rice crop.

What is the case with climate change?

Climate change is an increasing cause of concern. It will lead to extreme events like drought and heatwaves. It will create inflationary pressures.

Government policy of free water, electricity and subsidised urea are further damaging the natural environment.

What is the way forward?

We will have to invest more in climate-smart agriculture, in precision farming, with high productivity and less damage to natural resources.

Right policy ecosystem needs to be created for scaling technology.

We need to fix the issue prices of PDS supplies at half the MSP. There is a need to limit the PDS coverage to 30 percent of the bottom population.

Source- https://www.thehindu.com/business/Economy/retail-inflation-quickens-to-an-almost-eight-year-high-less-impact-on-low-income-households-says-finance-ministry/article6540