Special Topic – Inflation & Cost of Living

Page 3: Government Measures & RBI Role

Date: 07 February 2026

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1. Role of the Government

The Government plays a key role in controlling inflation through policy decisions, subsidies, and market interventions.

• Reducing taxes on essential goods
• Providing food subsidies through PDS
• Releasing buffer stock of food grains

2. Controlling Fuel Prices

Fuel prices directly affect inflation. The Government sometimes reduces excise duty to control price rise.

• Reduction in petrol and diesel taxes
• Subsidies for LPG and cooking gas
• Encouraging alternative energy sources

3. Import and Export Policies

The Government adjusts trade policies to stabilize prices.

• Importing essential commodities
• Banning exports of food items during shortages
• Reducing import duties

4. Role of the Reserve Bank of India (RBI)

RBI controls inflation through monetary policy. Its main objective is price stability.

• Increasing repo rate to reduce money supply
• Reducing liquidity in the market
• Controlling excessive credit growth

5. Interest Rate Policy

When inflation is high, RBI increases interest rates. This discourages borrowing and reduces spending.

• Loans become expensive
• Consumption reduces
• Demand pressure decreases

6. Inflation Targeting Framework

India follows an inflation targeting policy. RBI aims to keep inflation around 4% with a tolerance range.

• Maintains economic stability
• Builds investor confidence
• Protects common man’s purchasing power

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This page explains how Government policies and RBI actions work together to control inflation in India.