Tuesday, September 27, 2011

Price Rise – Saga of a Daunting Experience

The price rise across the board has hit the common man hard.

These are the watershed times in Indian socio-economic life as in food production the country at one hand is recording bumper harvest hoping to touch 4.4 per cent agricultural growth, on the other hand the increase in prices across the board are leaving the common man in tears.
Just when the government seemed to have heaved a sigh of relief after battling the Anna Hazare-led corruption crusade, the fuel price hike with the fear of leaving cascading impact has hit the UPA government hard.

The growing unpopularity of the Congress-led dispensation in the centre is near complete with the unprecedented increase in prices of essential commodities – affecting all sectors.

Predictably, the government stands vulnerable to severe criticism for alleged mishandling of the fuel price issue and also the food stocks and prices of other essential commodities.
Price-rise on all fronts has crippled the life of middle class. In fact, before they could stomach the hike in petrol price, there is already hike in home loan EMI and the Railway Ministry is talking about train fare hike. (See accompanying box – ‘Eclipse of a Family Life’)

The cry of the middleclass is not without good reason. Food inflation has ruled high for much of 2011, averaging 10.26 per cent in January-August.
The inflation has touched 13-month high by mid September and even for those who believe in higher GDP calculations, there is something to worry about as whilst between January-December 2010 period, growth was around 16.5 per cent, in the last eight months of 2011, it has failed to breach 15 per cent.

On 15 September, state-owned oil companies raised petrol prices by Rs 3.14 per litre. The government has sought to shift the responsibility to the oil companies. Subsequently, the official reaction from the Finance Minister Pranab Mukherjee has been that “inflation is a reality of our time” and quickly the Reserve Bank of India raised key interest rates by 25 basis points, the 12th time since March 2010.
These have come on the backdrop that only four months back, there was diesel price hike and according to estimates since 2004, when economist Dr Manmohan Singh was anointed as the Prime Minister, the prices of petrol products has gone up 40 times.
Former Finance Minister and BJP leader Yashwant Sinha says faulty government policies have helped the profiteers, hoarders and the corrupt to “loot” the common man of an additional Rs 6 lakh crore in the past three years. “We totally reject the theory that growth is required at any cost. Is the growth aimed to dispossess the poor?” he asks.
Food Prices:
The entire irony of the situations could be well understood as with hardly the heat and dust on fuel price hike settled, yet another government measure announced on 20 September could leave an adverse impact on the prices of onion.
However, the government was apparently pushed to a corner after it faced strong protests from onion growers – apparently also egged by the Maharashtra politicians.
The government decided to lift the ban on onion exports with the pledge to review the same every fortnight. The government had imposed a ban on onion exports on 9 September to check its spiraling prices which touched Rs 25 a kg in retail in the national capital.
Analysts agree that in recent months vegetable prices have shot up nearly 22-25 per cent – even at wholesale level and as a result their impact to the housewife gets magnified in inefficient distribution system where the same material passes through a whole range of intermediaries even as the authorities apparently prefer to look the other side.

The union Agriculture Minister Sharad Pawar has time and again resorted to the hunting game – looking for scapegoats to blame on spiraling prices. His excuses have been: global factors, increase in purchasing capacity of the village population and that the “high minimum support price to farmers”.
“The market is yet to reconcile to higher MSP for growers,” he reportedly told the Prime Minister in a meeting on price rise.
But the rhetoric do not help the aam admi, the ruling combine’s supposed core constituency. The government inaction is only pinching the middle class and more especially the poor along the base of the economic pyramid hard.
Take few examples. Rice that is the basic diet of the Indians sells about 3-4 per cent higher, wheat at 6 per cent higher compared to same time last year. Dal prices too hover around high range though it has come down a bit gracefully after having touched the sky with most pulses selling between Rs. 80 and Rs. 100 a kilo last year.
Similarly, prices of sugar, atta, milk and other items have also increased.

The price of milk has seen quantum leap from 2008 from average Rs 22 a litre to Rs 30 to Rs 35 forcing some consumers to admit openly that as a consequence they have shifted to “prefer black tea”.
In many households, such changes and sacrifices have become the order of the day.
In some cities, figures from the ministry of consumer affairs say, the milk price has even gone up to Rs 38.

In many middleclass houses, confectionaries and biscuits have vanished from the kitchen shelves and people have given up buying magazines and buying gifts and sweet for children and friends during festivals.

The large scale pessimism is endorsed by business chamber ASSOCHAM, which says, “Year on year in 2008-09 food articles rose by 10.85 per cent and in 2009-10 it was 17.4 per cent”.
Worse, retailers say, in some quarters the rise in prices of essential commodities has been week by week.

Even in many other areas, the common people are feeling the pinch. According to homemakers, even the prices of baby food and chosen health drinks have risen 2-3 times.

In Delhi, the common man’s agony continues in the form of higher prices for DTC city bus travel as well as whopping 20 per cent hike in electricity charges.

Diagnosis and Excuses:

The higher prices can not be swept under the table especially for food and other consumable items. There are several reasons.
Even globally, the spiraling food prices are being driven by financial players taking over commodities markets. Unlike the past, a report from World Development Movement, claims financial speculators now account for more than 60 per cent of some agricultural futures and options markets, compared to just 12 per cent 15 years ago.
"Financial speculators have flooded food commodity markets, creating sudden price spikes. For people in developing countries, price rises are disastrous," says the report's author, Murray Worthy. Even in India, parliamentary committees and several political parties have from time to time spoken against forward trading though a section of economists have always opposed the theory.
There are other factors too as echoed by Sharad Pawar that in recent years there has been significant inflow of government (read easy) money into rural India through the Mahatma Gandhi NREGA, the UPA’s populist scheme.
A report, from Kotak Institutional Equities points out that the income in rural India has risen by 138 per cent over the five-year period ending 2009.
“The first thing Indians do with higher income is to switch to better and increased food intake and also confectionary items like chips and biscuits. Moreover, India has a lot of vegetarians which means only increased consumption of pulses, vegetables and milk,” says an Ahmedabad-based commodity watcher.
He also says things can only get worse once the government comes out with yet another vote-catcher scheme, the so called Food Security Bill. The proposed act is expected to ensure subsidized grains to 90 per cent of the rural and 50 per cent of the urban population. The government would then confront a startling problem on the food subsidy bill.


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