In just the past month, inflation (annual price rise) has zoomed up, delivering a body blow to family budgets. Recently released government data shows that retail inflation rate hit an eight-month high of 7.34%, up from 6.69% in August. This is general inflation, including all items of consumption.
For food items, the price rise is even more chilling. Food inflation rose from about 9% in August to nearly 11% in September. See chart below showing price indices for food items and all items, over the past one year.
Last winter had witnessed a surge in prices of food items, mainly led by vegetables. But this has been surpassed by the current spike. What this means is that poorer people – that is most of India – will suffer a big dent in their consumption expenditure because most of their spending is on food items.
Official data shows that in the past one year, prices of some of the most essential daily consumption food items have increased relentlessly, as shown in the chart below.
Vegetable prices have increased 11%, prices of pulses and products by 14%, meat and fish by 17% and cooking oil and fats by 13%, according to consumer price index data from the Central Statistical Office (CSO).
This puts an unbearable burden on families that are already reeling under high unemployment rates, low incomes and a flagging economy yet to recover from the ill-conceived lockdown. Industrial production is continuing downward as revealed by the recent data on Index of Industrial Production (IIP), which shows a contraction of 8% in August, following dips in previous months. In particular, manufacturing dipped by 8.6% while mining by 9.8%.
Modi Govt’s Mismanagement
Despite a false sense of optimism being propagated by official quarters, hopes of economic recovery – and increase in employment – look bleak. According to the latest in a series of dire predictions by different institutions, the International Monetary Fund (IMF) has predicted that India’s economy will shrink by a staggering 10.3% this financial year, ending in March, 2021. This will be India’s biggest deceleration of growth since Independence and one of the worst in the whole world. The IMF report has predicted that among other BRICS countries, China will grow by 1.9% while Brazil, Russia and South Africa will show declines like India.
In this context, the galloping inflation in India, especially in food items, is not only a severe blow to people but it also exposes the complete paralysis on the economic front under the supervision of the Modi government.
Indian economy started slowing down last year and went into shutdown mode after the Modi government announced a premature and mismanaged countrywide lockdown in March this year to supposedly counter the pandemic. Although restrictions have been progressively eased since June, but the hope for ‘bounce-back’ in the economy has not happened. This is not surprising because the fundamental problem in the economy – lack of buying power in the hands of the people – has not been addressed. This has led to continued demand slump, which discourages productive activity and new investments. On top of all this, the mortal blow of the lockdown has drowned millions of small businesses and industrial units. The combination of all this is raging unemployment, which in turn adds to the declining purchasing power of people. Presided over by the Modi government, India continues in this vicious cycle. The so called measures to boost the economy have been barking up the wrong tree – they were directed at incentivising industrial houses to enjoy easy credit and expand investment. Naturally, that didn’t happen.
Even the latest measures announced by Union Finance minister Nirmala Sitharaman involved front loading some of the government’s already budgeted spending, like Leave Travel Concession (LTC) to an estimated 35 lakh government employees. Even in this pathetic attempt to boost demand, the stingy government laid down ridiculous conditions like they could buy only such goods as invite 12% GST, etc!
The government’s obsession with not spending its money has led to this sorry state. But things are spinning out of control – as demonstrated by the steadily rising prices of essential items. This is an issue that is politically explosive and has the potential to blow up under the government’s feet. Yet the Modi government is blithely deregulating the agriculture sector and campaigning all over the country about how this deregulation will help farmers – even as it is becoming clear that traders are laughing their way to the banks at the super profits they are making from hiked prices of vegetables.