New Delhi: An unexpected spurt in inflation—to a nine-month high of 5.9% in early March—has become a rallying cry for India’s opposition parties as well as some allies of the ruling United Progressive Alliance coalition.
The Congress party-led government immediately moved to allow freer import of essential food items, such as edible oils, to strengthen domestic supplies.
Inflation, as measured by the wholesale price index, is now up by more than 5% for the third straight week—well above the 4-4.5% level that policymakers find comfortable and near a 10-month high. According to an analysis by the National Commodity and Derivatives Exchange Ltd, the price increases so far in 2008 have been concentrated on manufactured articles category. Prices rose by 42% for imported oils, 38% for rice bran, 36% for gingelly and 26% for mustard oil.
FOOD INFLATION (Graphic)
Concerned, the government banned exports of edible oils for a year on 17 March on fears that a likely lower winter crop of oilseeds would stoke price expectations.
After the release of inflation figures on Thursday, the import duty on crude palm oil has been reduced from 45% to 20%, from 52.5% to 27.5% on refined palm oil, 75% to 27.5% on refined mustard oil and from 50% to 27.5% on refined sunflower oil. The government also reduced the import duty on semi-milled or wholly milled rice from 70% to zero.
However, opposition parties, desperately trying to wrest the political initiative from the United Progressive Alliance (UPA) after it presented a farmer-friendly Budget, are now focusing on the government’s failure to manage inflationary pressures. Some of the UPA’s allies, too, have begun to get restive.
The four-party Left Front that lends critical outside support to the UPA government has identified it as the core issue. Similarly, Mayawati, leader of the Bahujan Samaj Party, which also supports the UPA from outside, recently lashed out at the Centre for rising prices.
Basudeb Acharia, leader of the Communist Party of India (Marxist) in the Lok Sabha, said: “Between farm loan waiver and the unprecedented price rise, it’s not hard to guess which of the two issues will prevail in the next elections.” Even the Rashtriya Janata Dal (RJD), led by railway minister Lalu Prasad, has not spared the government.
“Since the Centre has failed in combating inflation, it is busy giving it a globalface (spurt in global prices of food articles and petroleum products), but that can hardly console the common consumer,” said Mangani Lal Mandal, a Rajya Sabha member of the RJD.
Bhartruhari Mahtab, a Lok Sabha member of the Biju Janata Dal, a constituent of the opposition Bharatiya Janata Party-led National Democratic Alliance, said, “Inflation will be the undoing of the UPA government. Whatever the reasons, consumers are only interested in whether prices are stable or going up.”
Interestingly, the “extraordinary” uptick in inflation, though mainly contained in food items such as pulses and edible oils where production is lagging demand, has still taken most analysts by surprise. Robert Prior-Wandesforde, India economist, HSBC Singapore, said, “Of particular worry is the big upward revisions to previous numbers, such as the inflation in the week to 12 January is 4.4% from the original 3.8% and that the manufacturing component is largely to blame... It looks like inflation will push through 6% much before what we had expected.”
A price rise just around budget time, which precedes the rabi harvest season, could also reflect pressures from trading and rich farmer lobbies, Pronab Sen, chief statistician of India, explained.
Udit Misra contributed to this story.