Why did BJP lose Assembly Elections 2018? Retail inflation has Answers .

With 2019 Lok Sabha elections due in six months, the government needs to address the inflation issue—and, in turn, rural distress—immediately    

Inflation is too low to support rural incomes. Graphic: Mint

Consumer Price Index-based retail inflation plummeted to 2.33% in November—a level capable of creating enough political currency to win an election. After all, too much inflation has toppled governments in the past. But the Bharatiya Janata Party (BJP), which is at the centre, lost the assembly elections. That is because inflation is too low to support rural incomes.

As the chart above shows, the current collapse in retail inflation is primarily led by a disinflation in food items. Food prices have fallen for the second consecutive month in November. Considering this, retail inflation in rural centres is far lower than that of urban areas. Falling farm incomes and rising rural distress is a red flag to the current government, which has promised employment for all. With 2019 Lok Sabha elections due in six months, the government needs to address this immediately.

While the drop in retail inflation would warrant an accommodative monetary policy, the stubbornly high core inflation makes it complicated for the Reserve Bank of India to act. Farmers are thus earning less than before, but their cost of borrowing hasn’t come down.