With the price of virtually everything having gone up, there’s little to be said about the impact of inflation in recent times on the general Indian public that isn’t readily visible.
Inflation in India touched a thirteen-year high of 11.42 per cent in the week which ended on June 14. A far cry from the 4 percent it was at in January 2008.
The issue, as the IMF had recognised in April itself, is a ‘politically hot issue’ with General Elections being scheduled to take place early next year. If not anything else, this isn’t an ideal time for the Government to be forced to deal with popular discontent because of rising prices not just because of the direct effects of inflation but also because of the actions its been forced to take to deal with complementary problems including the rise in fuel prices.
Some of the Government’s measures such as reducing fuel subsidies almost across the board have had a direct adverse impact on individual consumers and have done nothing to create the frame of mind which the Government would presumably like to see in voters.
Individuals are not the only ones to have been affected though. The performance of nearly 38 per cent of Indian companies has deteriorated over the last six months and, for many of them, things are predicted to get quite a bit worse before they get any better.
One of the underlying problems has been the phenomenal global increase in oil prices. No one seems to be entirely certain what caused the increase and there has been little agreement on how it should be dealt with. Even leaving aside the fact that petroleum and other similar products are used to synthesize thousands of modern materials right from plastic to chewing gum, the increase has caused the cost of transporting goods to go up significantly, and consumers have had to bear the brunt of the increase. Although, in the long term, the solution is to decrease dependence on oil, short term solutions which have been suggested involve the grant of tax breaks.
Moving back to India, whether or not imported inflation is influencing the rise in domestic prices, what has become increasingly clear is that India needs to create its own comprehensive policy on how to deal with the issue.
The Raghuram Rajan Committee suggested that the Reserve Bank of India focus on controlling inflation. In Europe, the European Central Bank tried to do this by not slashing interest rates to revive growth. Some experts have, however, warned that this may not work in India considering that inflation (which, for example, in India generally rises after every draught) could well be dependent on far more than the country’s monetary policy alone.
On its part, the Government has banned the export of a number of products including non-basmati rice, pulses, edible oil and cement. However, it has refused the recalibrate the rupee in the interest of maintaining a transparent foreign exchange regime.
Only time will tell if the measures the Government has taken will help ensure that the economy doesn’t sink into a depression. What is almost certain though is that its measures will do little to stimulate any form of growth or help to immediately ease the burden which has been placed on individuals.
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