Inflation spoils common man’s palate in 2010

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The inflation devil returned to haunt the government struggling to steer the country towards a high growth trajectory, but most of all higher prices of edibles ranging from egg to milk and fruits to onions in 2010 ruined even the most unrefined palate.
The severity of inflation could be gauged only when the prices of onion, which shot up to Rs. 70-80 a kg, is juxtaposed with the average daily wages of India’s nearly 300 million informal sector workers — Rs. 100.

Though statistically, onion and garlic prices account for only a small percentage of total inflation (0.177 and 0.06 per cent), the question roiling the common man would be — what is the use of declining inflation numbers, if one cannot get a commodity as essential as onion at an affordable price.

Prices of some bulb vegetables — onion and garlic — went through the roof towards the end of 2010, spoiling all the gung-ho about moderating inflation and self-pat on the back by the government for controlling prices.

Incidentally, the news of onion prices skyrocketing to Rs. 70-80 a kg in retail markets came at a time when Prime Minister exuded confidence that inflation will come down to 5.5 per cent by March end from 7.48 per cent in November.

Onions turned extremely costlier due to damage of crops in Maharashtra because of unseasonal rains and hoarding.

With government swinging into action by banning onion exports and removing customs and countervailing duties on the commodity, the prices calmed down to Rs. 40-50 a kg, but garlic prices flared up and are ruling at about Rs. 300 a kg.

Though statistically, onion and garlic prices form only small percentage of total inflation (0.177 and 0.06 per cent), the common man is going to ask — what is the use of declining inflation numbers, if he cannot get as essential a commodity as onion at affordable price.

The extent of high prices could also be gauged from the fact that the Union government has recently proposed minimum wage of Rs. 100 for unskilled workers. Suppose these workers get this much wage only, much of it would be shelled out in buying onions, garlic, tomatoes, whose prices also rose to Rs. 35-40 a kg.

Similarly, rural folks get at least Rs. 100 a day with a minimum guarantee of work for 100 days a year under the UPA’s flagship programme NREGA.

High onion prices has played a role in the defeat of Janata Party in the 1980 general elections and the rout of BJP in the Delhi assembly elections in 1998.

As of December 18, food inflation was at a high of 14.44 per cent.

The decline in headline inflation to 7.48 per cent in November from its peak of over 11 per cent earlier this year, however, brings no respite to the government or the RBI given the uncertainty over future prices, particularly global oil rates.

In fact, RBI in its recent review of monetary policy clearly stated that inflation remains its major concern, even though it refrained from hiking policy rates as the system was facing cash crunch. The RBI had raised key policy rates six times in 2010 to combat inflation.

A tighter monetary policy has implications for growth, as credit needed for investments would be hard to come by and may hit the government’s attempt to put the economy on a 9 per cent-plus growth path.

A normal monsoon and good kharif crop was expected to have brought respite on the food prices front. The government and senior economists had predicted such an outcome. Besides bulb vegetables, protein-based items like egg, fish, meat and milk, continue to be a matter of concern.

The high food prices prompted the Cabinet Committee on Prices to hold a meeting under the chairmanship of Prime Minister Manmohan Singh to take stock of the situation on December 30.

The high-level committee noted that fruits, eggs, meat, fish, milk, onions and other vegetables remained major areas of concern, a source said.

The RBI also said that there is risk of rising global commodity prices spilling into domestic inflation and warned that rising domestic input costs for the manufacturing sector, combined with aggregate demand pressures, could weigh on inflation.

As regards fuel inflation, it has also registered 12.5 percent in the first eight months of the current fiscal as against a negative growth in the corresponding period of the previous year.

In the Mid-year Economic survey released in early December, the government exuded confidence that inflation will be down to 6 per cent by March 2011.

Prime Minister Manmohan Singh had said the government expects inflation to plummet to 5.5 per cent by end of the fiscal.

However, international commodity prices might play havoc and the Reserve Bank, in its second mid-quarterly review, also pointed at this. A severe winter in Europe has led to crude prices going up to almost $95 per barrel.

The RBI had fixed a target of 5.5 per cent inflation by March 2011.

In January, the wholesale price inflation was 8.56 per cent and it hovered above that figure for rest of the year, including in double-digit for six months between February and July, before sliding back of 7.48 per cent (provisional) in November, the last month for which data is available.

During the year, the government also came up with a new index for measuring inflation with 2004-05 as the base year, in place of the older 1993-94 index.

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This post was submitted by Mudit Agrawal.

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