People's perceptions of public policy: Keep them on the radar

Public policy needs to be viewed from the lens of those whose interests it is ostensibly designed to serve: the people of India

- INDIRA RAJARAMAN

Public policy is so termed because it is done for us the people, the public. But how does it actually filter down to the public? How do people perceive what is done for them?

When Consumer Price Index (CPI) inflation dropped from 6.21% in October to 5.48% in November, did people perceive a decline? For the record, these monthly rates are year-on-year, based on the CPI values in the corresponding months of 2023. To some extent the inflation decline was an artefact of the CPI values in October and November 2023 (called the 'base effect'). But the CPI index reading did decline a touch in November 2024 relative to October. What matters is whether people experienced the reduction that the inflation index suggested.

The Reserve Bank of India (RBI) conducts a six-monthly survey of 3-month and 1-year ahead inflation expectations, termed Subjective Inflation Expectations (SIE) in the economics literature. Chetan Ghate has charted the RBI expectations survey results over the last 14 years. The average expectation across households in the sample, hovering around 10% over the last ten years, has consistently remained well above recorded inflation rates.

The chart shows no decline in average SIE after inflation targeting began in 2016, although there is some rough consonance between variations in household inflation expectations and movements in recorded inflation. The purpose of having a (credible) targeted inflation rate, or band, is that economy-wide inflation expectations (FIRE, for Full-Information Rational Expectations) will converge towards the target.