Thursday, September 22, 2011

Rise and rise of prices

Inflation has been a lot of heartburn for the common man who finds it difficult to make both ends meet. The government has failed to curb price rise

By K.A.Badarinath

Indian households with low incomes have paid through their nose an additional Rs 580,000 crore in last three years to meet their basic food requirements, consumables and keep themselves warm.
It is not that people have suddenly started splurging on luxury. Indian households had to fork out so much extra due to rising prices that refuse to recede for reasons best know to economic policymakers.
Low-income families and those in rural areas that spend most part of their meager earnings on food seem bore the brunt of rising prices.
UPA government continued to make claims that rise in food prices has been arrested to an extent. Policy hawks have dished out figures to show how inflation - both headline and food - have receded in past few months.
Independent ratings agency, Crisil has brought to fore the fact that Indians paid about Rs 600,000 crore extra towards meeting their basic necessities just because there was little or no effort made by UPA government to rein in prices of food and other essential items.
Crisil report of June 28 concluded that in 2008-09 to 2010-11, Indian households have spent astronomical sums on food as their prices rose by 11.6 percent. It also concluded that food prices rose sharpest in last three years vis-à-vis other items. A striking anomalous fact highlighted was that televisions, air-conditioners and washing machines became cheaper where as prices of bare essentials like atta, rice, edible oils, fruits and vegetables skyrocketed. Prices of items like eggs, meat, fish and milk have gone up by over 23.6 percent. Crisil monitored prices of 676 items to conclude that Indian households with meager incomes were worst hit.
The report said that Indian households had to fork out Rs 45,000 crore extra in 2008-09, Rs 162,000 crore in 2009-10 and Rs 376,000 crore in 2010-11 due to unabated rise in prices of essential items.
A more recent study done by industry body, Assocham, during 2005-11, prices of eight essential commodities went up by nearly 72 percent at a time when the per capita incomes rose by 38 percent in metros and much lower in rural areas.
As per Assocham study, condiments & spices became expensive by 158 percent. Eggs, fish and meat, milk, pulses became costlier by 73.69 - 78.88 percent. Other items like coffee, tea, wheat, fruits and vegetables saw surge in their prices ranging from 70.75 percent to 59.31 percent.
Interestingly enough, per capita income of an average Indian went up very disproportionately to Rs 35,917 from Rs. 26,025 per annum in 2005-06. Given the fact that incomes are very unevenly distributed with a miniscule minority getting maximum, rural poor has been the worst hit due to 'mis-management' in food economy.
Former finance minister Yashwant Sinha pointed out in Lok Sabha during a recent debate on price rise, "the extra (additional) spending made by people on their food is last three years tantamount to another form of taxation". He pointed to Rs 6.64 lakh crore that is being collected as tax revenues in 2011-12.
UPA government's take on rising food prices is four fold: It has endorsed the US government line that food prices are on the rise worldwide as people in developing countries including India are eating more. Both, George W Bush and President Barack Obama have made these statements in the context of rising food prices worldwide. And, the two US leaders seem to have ready followers in Indian policymakers.
Second point the government has made: oil prices have risen in global markets contributing largely in making food more expensive in the country. Third reason cited is that Indians purchasing power has increased and hence people are paying for food and other consumables. Fourth argument given by the veteran finance minister Pranab Mukherjee is that since farmers are being paid better prices for food grains, the food has become more costly in open market.
But, the facts seem to prove otherwise. For instance, thousands of farmers have either driven themselves to suicide or sold their bare belongings to pay the banks' loans in last three years that seem to be completely ignored by the economic policy making team of the central government. Maharastra, Madhya Pradesh and Andhra Pradesh seem to be worst hit vis-à-vis farmers' suicides as they continued to default banks loans and face the ignominy.
Similarly, the government continues to increase revenues mobilization through taxes that ultimately have adverse impact on consumers while the farmers are crying for help.
Further, policy response from government to moderate prices of at least food items seems very weak or rather non-existent. The only measure that seems to have been taken is to increase interest rates 11 times by 450 basis points from February 2010 till now. Government's strategy to make cost of money more expensive and reduce consumption seems to have not yielded any result. Given the inflationary pressure that continues to bog the economy, both on food and non-food items, there may not be any respite in near future especially for the vulnerable poor.
In fact, RBI Governor Duvvuri Subba Rao was severely critical of this government for not taking any credible measures to fight price rise and leaving it to the bank for taking money measures.
It is true that government has hardly taken any big measures to fight food price rise.
Most old timers do point out that high interest rates and high inflation of early 1990s is back to haunt the people that are already neck deep and impacted by corruption at various levels.
Here, it is not out of context to point out that weeding out corruption from the economic programmes, schemes and contracts given out by government would have salutary impact on prices.
One does agree that there are no easy solutions to rein in prices. But, political will, determination of economic leadership and corporate world coupled with conviction to make life easier at lowest level is what is missing.

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