No let-up in inflation; Left ups ante on policy

No let-up in inflation; Left ups ante on policy
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First Published: Sat, Jun 28 2008. 12 55 AM IST

No relief: A street-side vegetable seller in Mumbai waits for customers. Inflationary pressure has now shifted to manufactured goods such as sugar and edible oils, which would have a direct impact on
No relief: A street-side vegetable seller in Mumbai waits for customers. Inflationary pressure has now shifted to manufactured goods such as sugar and edible oils, which would have a direct impact on
New Delhi: Inflation jumped to 11.42% for the week ended 14 June, the highest in 13 years, strengthening the stand of critics who say the Congress-led coalition government’s insistence on pushing through the contentious Indo-US nuclear deal is a case of misplaced policy priorities.
The rate, measured by the Wholesale Price Index, could be even higher once the provisional data is updated by the industry ministry after a lag of eight weeks. In the previous week, the barometer of rising prices had scaled double digits to 11.05%.
The politically uncomfortable news could cramp the efforts of the ruling United Progressive Alliance (UPA) to cobble alternative political support to make up for the loss of Left backing in case the government approaches the International Atomic Energy Agency (IAEA) for approval of India-specific safeguards over the nuclear deal.
No relief: A street-side vegetable seller in Mumbai waits for customers. Inflationary pressure has now shifted to manufactured goods such as sugar and edible oils, which would have a direct impact on consumers
Left parties, which have organized protests against the government’s inability to rein in inflation, could raise the ante now that they are poised to split from the UPA.
“The country is watching the spectacle of a leadership which is obsessed with its vision of becoming a strategic partner of the United States ..,” Communist Party of India (Marxist), or CPM, leader Prakash Karat wrote in the party organ People’s Democracy.
“If the priorities of our country and the people are kept in mind, the government should be engaged on a war footing to curb inflation and price rise and take urgent measures to provide relief to the people,” Karat wrote. “But the last fortnight has exposed what the priorities of the government are.”
The Bharatiya Janata Party (BJP), the largest opposition party in the country, also attacked the government. “The public will wonder why the government is putting all its energies in the nuclear deal when inflation is at such a high level,” said Jagdish Shettigar, convener of the BJP’s economic cell. .
The Congress, however, denied that the government’s policies are misplaced. “The nuclear deal issue has been on since 2005 while inflation is a rather recent issue,” Congress spokesman Shakeel Ahmad said. “We are dealing with both separately.”
More worrying for the government is the nature of the current spurt in inflation. The data put out by the industry ministry shows the source of inflationary pressures has now shifted to manufactured products, which has a weight of 63.75% in the index, some of which, such as sugar and edible oils, are staples that would have a direct impact on consumers.
While the sub-group of manufactured food products was up by 14.09%, the annual increase was 16.11% for edible oils.
“There is no surprise in the inflation figures now. The shift to manufactured products is understandable as the second level impact of fuel price hike is starting to show,” said N.R. Bhanumurthy, an associate professor at the Institute of Economic Growth in New Delhi. “As a result inflation will continue to be high for another two-three months.”
The Reserve Bank of India (RBI) has twice raised its key lending rate this month and taken money out of the financial system in a counterattack against inflation, making credit more expensive for both companies and consumers.
Inflation also has a “corrosive impact” on household savings in a country where money is mostly parked in low-yielding bank and postal accounts, but most consumers aren’t aware of it, said a survey by research firm IIMS Dataworks.
According to the survey, nearly 150 million earners in the country do not understand the importance of factoring in inflation to their savings decisions. About half of this group save exclusively with banks and India Post and had an estimated Rs267,000 crore on deposit with these institutions in 2007, IIMS Dataworks said.
“The plot thickens however when the savings behaviour of the inflation-aware population is considered,” said the report, which found that an estimated 71 million of these individuals last year shunned the securities markets in favour of bank-type or life insurance savings, “in the conscious knowledge of the tradeoff they were making between the security of their savings and the prospect of higher-than-inflation returns.”
ruhi.t@livemint.com
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First Published: Sat, Jun 28 2008. 12 55 AM IST