Be it a housewife, an economist or a corporate honcho—concerns about rising inflation are dotting everybody’s mind. The most worrisome qualitative and quantitative feature of this rising inflation rate is the contribution of the food basket. While the overall WPI (wholesale price index) has risen in the range of 6-7%, the rate of price rise in food items has been mind-boggling—in the range of 9-10%. Besides, the figures that one reads in newspapers are at a wholesale level. By the time the common consumer is touched by it, the figure is 1-2% over and above WPI, depending on the concerned commodity basket.
Inflation will hit harder those families who spend more on their basic food items, especially those who have to buy these daily. Indeed, inflation is impacting around 25-30 crore people in India every day.
The finance ministry and Reserve Bank of India (RBI) have sprung into action now. RBI is busy exhausting all possible monetary tools to suck out money from the system, while the finance ministry has reduced basic customs duties on items.
The real issue is whether people perceive that these measures will help. Addressing the concerns of people becomes all the more important at a time when we are about to witness a possible oil-price shock—due to building up of geopolitical tensions in the Persian Gulf—that would intensify the inflationary situation. I interacted with consumers and vegetable vendors at Vashi (Mumbai) just to understand if they really felt the government was doing enough on this front. Not even one person was ready to say anything that would make the government happy.
There is simmering anger within citizens about the way government machinery has been unable to arrest inflation before it actually starts impacting their pockets. They have every right to be angry. Calculations show that a housewife spent Rs6 or more per plate of rice, dal, two chapatis and vegetables in January 2007, compared to what she spent in January 2006. For a family of four, this totals to an additional expenditure of about Rs1,920 for two daily meals per month.
It may be true that higher inflation might end up reducing the public-debt to GDP ratio. For the man on the street such jargon doesn’t mean anything. It won’t be an exaggeration to say that inflation is one such astra, which, if harnessed properly, can sustain the faith of the people and industry in the (ruling) government. If not harnessed, this astra will only result in political misfortune. The forthcoming Union Budget provides an opportunity for the government to at least communicate to the people that it is taking measures to arrest its northward movement. Of course, there’s no need to add here that measures should follow promises!
The author is chief economist with Economic Laws Practice, Advocates and Solicitors. We welcome your comments at firstname.lastname@example.org