demand. interest rate change don ’ t matter so much. when food prices rise, the extra income earned by the financially excluded is not saved but instead consumption is increased, leading to higher aggregate demand. in this kind of a situation, the efficacy of monetary policy in achieving its stabilisation objective increases by targeting a measure of prices that includes food prices rather than one that excludes them such as core inflation. the lower the level of financial inclusion, therefore, the stronger is the case for price stability being defined in terms of headline inflation rather than any measure of core inflation that strips out food and fuel. in india, food accounts for 46 per cent of the cpi, among the highest shares anywhere in the world. furthermore, the cpi combines a rural index and an urban index, with the share of food being even higher in the rural index at 54. 2 per cent. in the urban index too, the share of food at 36. 3 per cent is also sizable in a crosscountry perspective. consequently, aggregate demand is highly influenced by the behaviour of food prices and farm output, rather than interest rate changes to which the urban index could be sensitive. it is in this context that the monetary policy framework overhaul in 2016 to usher in a flexible inflation targeting regime wisely chose the headline cpi as its metric for measuring the inflation target rather than any measure of core inflation, despite persuasive arguments for the latter that are made even today. headline cpi inflation averaged 3. 9 per cent since the institution of flexible inflation targeting right up to the onset of the pandemic in march 2020 ( i. e., during october 2016 – march 2020 ). with the first onslaught of covid - 19, headline inflation breached the upper tolerance band and averaged 6. 2 per cent in 2020 - 21. strong supply side interventions to expand access to buffer stocks and imports, to incentivise productivity, and lowering of taxes tamed the upsurge and aligned headline inflation again with the target, barring short - lived spikes due to inclement weather in key vegetable producing areas. food inflation has been volatile throughout this period, reflecting the incidence of supply shocks on the production of items to which inflation is particularly reactive. it rose from an average of 2. 9 per cent during the fit period of 2016 - 20 to 7. 4 per cent in 2020 - 21 at the height of the first wave of the pandemic, but the policy interventions have managed to temper it to 3

question that is valuable for both people and the central banks that serve them. it is observed that financial literacy empowers people to choose more relevant information and to make better use of it. closer assessment of future inflation helps inform choices on personal finance decisions, including opening of a bank account, taking a bank loan or even bargaining for wages. india has recently stepped up its drive for financial inclusion to reach unserved and underserved sections of society. the jam trinity - jan dhan yojana ; aadhaar ; mobile - is an internationally acclaimed gamechanger in this regard and is widely regarded as having completed inclusion on the deposit side. during the pandemic, the jam trinity was leveraged to support and save livelihoods. the nabard ’ s self - help group bank linkage programme has emerged as the world ’ s largest microfinance programme in terms of number of beneficiaries and microcredit extended. the rbi has taken a number of outreach and public awareness campaigns for financial literacy, the most visible being rbi kehta hai, interactive voice response system ( ivrs ), and these initiatives have spanned all types of media. as these efforts intensify, it is expected that an included and aware population will participate more in monetary policy formulation and implementation, develop more rational expectations and induce financial intermediaries to transmit policy impulses more swiftly and effectively across the financial system. vi. conclusion monetary policy authorities typically avoid discussions on inequality. they like to be seen in a macro - stabilisation role and prefer leaving distributional issues to fiscal authorities. yet, increasingly, they realise that financial inclusion – or the equality of access to formal finance – impacts the conduct of monetary policy more fundamentally than they thought, in the choice of metric for measuring goal variables, in the choice of trade - off between their variances, and in the efficacy of monetary policy in reaching out to the broader economy. it is in this context that central banks find themselves integrally involved in policy drives to expand financial inclusion because they have to take into account the true financial structures of the economies in which they conduct monetary policy. as people get financially included, they can use their access to formal finance to deal with both good and bad times and in more accurately assessing future inflation. and this has monetary policy implications, as i pointed out. so, central banks do care about inequality. after all, social welfare – the mandate of institutions committed to the greater public good – hinges on it. thank