In India, children between the age group of 6 and 14 years have the fundamental right to free and compulsory education. This right is implemented through the Right of Children to Free and Compulsory Education Act, 2009 (RTE Act). The Act is applicable to all categories of schools (government and private). According to recent media reports (see here and here), many schools (including government schools) are flouting norms laid down in the RTE Act. Unaided schools have criticised state government over norms related to religious and linguistic status of minority schools (see here and here). The government has also faced flak over unclear norms on neighbourhood schools and reimbursement of money to private schools (see here, here and here). Most Acts ‘delegate’ the power to make rules and regulations for operationalising the law to the executive (Ministry). We provide an overview of the Rules notified by the state governments. The central government notified the RTE Rules 2010 on April 9, 2010, which are applicable to all schools under the central government, and in the five Union Territories without legislatures. Most of the states have notified similar Rules with a few variations. The Rules define the limits of a neighbourhood and make it mandatory for the local authority to maintain list of children within its jurisdiction. They also prescribe the composition of the School Management Committee to be formed in government schools. Private schools shall reserve 25% of the seats for disadvantaged children. These schools shall be reimbursed for either their tuition charge or the per-student expenditure in government schools, whichever is lower. All private schools have to be recognised before they can start operation. Recognition is contingent upon meeting the minimum standard laid down in the Act Existing private schools have to meet the norms within three years of commencement of the Act. If they are not compliant after three years, they shall cease to function. Government schools under the central government have to meet only two conditions: the minimum qualification for teachers and the student-teacher ratio. For all state government schools and un-adided schools, the power to make rules is delegated to the state government. The central government circulated Model Rules for the RTE Act to the states. All state governments, except Goa, have notified the state RTE Rules. Delhi and Puducherry have also notified them. Most of the states have notified similar Rules with a few variations. We list some of the variations. Andhra Pradesh: The break-up of the 25% quota among the various disadvantaged groups have been included in the Rules. Scheduled Castes: 10%; Scheduled Tribes: 4%; Orphans, disabled and HIV affected: 5% and children with parents whose annual income is lower than Rs 60,000: 6%. Rajasthan: Private schools either have to be affiliated with a university or recognised by any officer authorised by the state government. Karnataka: In addition to the minimum norms under RTE Act, private schools have to comply with the Karnataka Education Act, 1983. Gujarat: If an existing recognised school is unable to meet the infrastructure norms it may be given the option of demonstrating that it achieved certain learning outcomes, both in terms of absolute levels and as improvement from previous years. Uttar Pradesh: The government shall pay per child reimbursement to the school after it gives a list of children with their Unique Identity Number and other details. Kerala: The local authority has to maintain a record of all the children (0-14 years) within its jurisdiction. It shall also maintain the Unique Identity Number of every child, as and when issued by the competent authority, to monitor his enrolment, attendance and learning achievements. Haryana: Defines textbooks, uniform and writing material. It states that Hindi is to be the preferred medium of instruction in all schools. For using other language, permission of Director, Elementary Education Dept is required (to be given within 45 days or deemed to be granted). West Bengal: The Rules give detailed definition of the appropriate age for each class. They require schools to be set up in a relatively noise-free and pollution-free area with adequate supply of drinking water and electricity. Existing schools (which are already recognised or affiliated with a Board) may get the local municipal authorities to provide infrastructural support including relaxation of building rules to comply with the requirements of the Act. Additional sources
The Monetary Policy Committee (MPC) has decided to conduct an off-cycle meeting today to discuss the failure to meet the inflation target under Section 45ZN of the Reserve Bank of India Act, 1934. As per the Reserve Bank of India Act (RBI), 1934, MPC is required to meet at least four times each year, to discuss the macroeconomic issues in the country, and take policy decisions to address those. This is the second time MPC has conducted an off-cycle meeting in 2022-23. The meeting is scheduled in light of inflation being consistently high for nine consecutive months.
In this blog, we discuss what the inflation targeting framework is, examine retail and wholesale prices, and the divergence between them.
What is the inflation targeting framework, and what happens if inflation is persistently high?
In 2016, Parliament amended the RBI Act, 1934 to change the monetary policy, and introduce an inflation targeting framework. This framework prioritises price stability to achieve sustainable GDP growth. Price stability allows investors to confidently invest their money for productive activities, without worrying about it losing value. Price stability also maintains the purchasing power of consumers, i.e., the ability to purchase a good (or service) with a given amount of money.
As per the new framework, the central government, in consultation with RBI sets: (i) an inflation target, and (ii) an upper and lower tolerance level for retail inflation. The target has been set at 4%, with an upper tolerance limit of 6% and a lower tolerance limit of 2%. The upper and lower limits indicate that although it is desirable for inflation to be close to 4%, deviation between these limits is acceptable. The target and bands are revised every five years. In March 2021, the existing targets were carried forward.
Retail inflation has been above 6% for the past nine months, and it has been above 4% from October 2019 onwards (See Figure 1).
Figure 1: Consumer price index (year-on-year; in percentage)
Sources: Database on Indian Economy, Reserve Bank of India; PRS.
If inflation is above or below the prescribed limits for three quarters, RBI must submit a report to the central government explaining why prices have been rising (or falling) persistently, what will be done to correct that, and an estimate as to when the target will be achieved.
The MPC uses tools such as interest rates to control the level of inflation in the economy. One such rate is the policy repo rate, which is the rate at which RBI lends money to banks. An increase in the policy repo rate makes borrowing money more costly, and hence is expected to control inflation by reducing the money supply. MPC increased this rate from 4% in April 2022 to 4.4% in May 2022, to 4.9% in June 2022, to 5.4% in August 2022, and to 5.9% in September 2022.
Breaking down the Consumer Price Index and the Wholesale Price Index
Consumer Price Index (CPI) measures the general prices of goods and services such as food, clothing, and fuel over time. Retail inflation is calculated as the change in the CPI over a period of time. Goods and services such as petrol, food products, health, and education are considered for its calculation, which are assigned different weights (See Table 1). Between February 2022 and August 2022, the average annual inflation was 6.9%. The rise in prices of subcomponents of the CPI during this period is indicated in Table 2.
|
Table 1: Assigned weights for the calculation of CPI
Sources: MOSPI; PRS. |
Table 2: Average inflation of some CPI components
Sources: Database on Indian Economy, RBI; PRS. |
CPI is not the only index that measures inflation in an economy. The Wholesale Price Index (WPI) measures the wholesale prices of goods. A change in wholesale prices reflects wholesale inflation. Table 3 indicates the weights assigned to goods for calculating the WPI. Manufactured goods include metals, chemicals, food products, and textiles.
|
Primary articles (23%) include food articles, and crude petroleum and natural gas. Fuel and power (12%) include mineral oils, electricity, and coal. WPI has remained above 10% from April 2021 onwards. It reached an all-time high of 17% in May 2022. This was driven by the inflation in metals, kerosene and petroleum coke, fruits and vegetables, and palm oil. |
Table 3:Assigned weights for the
Sources: Ministry of Commerce and Industry; PRS. |
Why has WPI inflation been consistently above CPI inflation?
Movements in the WPI have an impact on the CPI. For almost a year and half, CPI inflation has remained below WPI inflation. However, as per the design of the indices, it is expected that CPI would remain above WPI, and that any increase in WPI would reflect in the CPI after a time lag. This is because retail prices include taxes (as a percentage of price), while wholesale prices do not. Additionally, some of the goods in WPI act as inputs in the goods considered in CPI. An increase in input prices would lead to higher retail prices after a time lag.
We discuss possible reasons for why CPI has remained below WPI for a year and a half.
Figure 2: Consumer Price Index and Wholesale Price Index
Sources: Database on Indian Economy, Reserve Bank of India; PRS.
Composition of indices
As indicated in Table 2 and 3, the composition of the two indices varies. For instance, prices of manufacture of basic metals, chemicals, and machinery grew at an average rate of 13% between February 2021 and September 2022. They contribute 7% to the WPI. These are input goods for producing final goods and services such as automobiles, which are included in the CPI. The rise in prices of transport vehicles, communication devices, fuel for transport, and housing (CPI components) rose by 6% during this period.
The Ministry of Finance has observed that wholesale prices did not feed into retail prices (from March 2021 onwards) as wholesalers absorbed the rising input costs and did not pass them on to retailers. In August 2022, it noted that as retail prices are rising now, the pass-through may occur.
