Millennium Post

Tough times knocking

Rising prices of commodities, particularly food items, coupled with dampened economic indicators dawn an adverse winter for people as government remains in a policy limbo

Tough times knocking

Lowering income owing to a serious slowdown in the economy and rising prices of goods and services is a deadly combination that has been delivered to us to be swallowed. Inflation is set to rise more sharply than expected. Moreover, the Indian government does not seem to have any clue as to how to contain them effectively in the near future. The situation appears to be out of the government's control, greatly affecting the well-being of people and pushing them into greater difficulties. Food is essential and that too is becoming increasingly costlier, making the poor even more vulnerable.

The rising food prices have already pushed the retail inflation in November to an over three-year high of 5.54 per cent as per the latest data released by the National Statistical Office (NSO). In November 2018, it was only 2.33. The previous high of the Consumer Price Index was 6.07 in July 2016. The industrial sector output has also shrunk for the third month in a row by 3.8 per cent in October. It indicates that the slowdown in the Indian economy is deepening.

Nobody had expected such a decline, including the Indian government, Reserve Bank of India (RBI), Asian Development Bank (ADB), International Monetary Fund (IMF), OECD, World Bank, or even other think tanks and agencies engaged in economic monitoring. All of them have been continuously revising their earlier estimates of economic growth downwards and inflation upwards. It would seem that no one has a clue.

We can take examples of two most recent estimates — one by the RBI and the other by ADB. The retail inflation in November breached the RBI's medium-term target of 4 per cent. ADB had also predicted inflation of India at about 3.5 per cent. However, in the recent supplementary update, ADB has revised it to 4 per cent. The November data proved both the projections wrong. Now, both the RBI and ADB have projected a rise in inflation.

It may not be out of place to mention here that inflation in India, having remained well below the 4 per cent target in the first half of 2019, crossed above it in October to reach 4.6 per cent as food inflation soared to 6.9 per cent. One year before, in October 2018, based on CPI, it was 4.62 per cent. It shows how volatile the situation is. Inflation is sharply rising beyond expectation and calculations. All think tanks and agencies expected the inflation benign on the basis of moderate global oil prices and decelerating global food price inflation. The situation has become otherwise.

The latest NSO data shows that vegetables, pulses and protein-rich items have become costlier, which has pushed the CPI-based retail inflation to a 40-month high in November. By this time of the year, vegetable prices used to be moderated. That did not happen this year. In fact, the opposite took place with Inflation in the vegetable shops up to 35.99 per cent in November as against 26.10 per cent in October. However, moderation in vegetable prices is expected in the near future which should douse food inflation to a large extent early next year but how much remains is the question.

Owing to a good monsoon this year, it is true that the groundwater level and water levels in the reservoirs are good and output and yields of various cereals and pulses should be satisfactory. But the problem is that our country is witnessing the year-on-year decline in the area sown under rabi pulses and oilseeds. Some of these items have recorded high inflation rate which is posing a great concern.

Among other food articles, the prices of cereals and eggs grew at a faster pace of 3.71 per cent, while the prices of meat and fish rose by 9.38 per cent annually and of eggs by 6.2 per cent in November. Prices of pulses and related products jumped 13.94 per cent during this month.

The falling output of manufacturing, mining and electricity has already pulled down the Index of Industrial Production (IIP). The factory output has declined by 4.3 per cent in September and 1.4 per cent in October. It is worth mentioning that the IIP had expanded by 8.4 per cent in October 2018. During April to October, the IIP growth remained almost flat at 0.5 per cent compared to 5.7 per cent in the previous year.

The manufacturing growth rate declined by 2.1 per cent in October compared to 8.2 per cent last year. Power generation growth slipped sharply by 12.2 per cent in October, indicating a decline in the run-time of our industrial and production units. Mining output fell by 8 per cent as well. Capital goods production also declined by 21.9 per cent in October, which indicates a fall in the level of investment.

Out of 23 industry groups in the manufacturing sector, 18 have shown negative growth during October compared to the same month last year. The manufacture of computer, electronic and optical products have shown the highest negative growth of -31.3 per cent followed by the manufacture of motor vehicles, trailers and semi-trailers with a negative growth of -27.9 per cent.

We have already witnessed the slowest pace of growth over six years in the Indian economy at 4.5 per cent during the second quarter of 2019 which was 5 per cent in the first quarter. In the given scenario, the economic slowdown is to continue for some time.

In all likelihood, the inflation is to spike further to around 6 per cent in December 2019, primarily on account of the government policies that we have adopted. Rates of several goods and services have been increased. All these may result in higher prices and inflation in the months ahead.

Views expressed are strictly personal

Gyan Pathak

Gyan Pathak

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