Inflation, India & Politics (IIP)

There’s one thing common between inflation and the Indian government. God damn them both!

Very quickly, inflation is the increase in price of an item sold versus its previous price. The inflation could be measured on a month – on – month basis or a year – on – year basis (the price during the same month in the previous year). Inflation has 2 indices viz. WPI (Wholesale Price Index) – price of goods sold in the wholesale market and CPI (Consumer Price Index) – price customers pay for buying goods. The Indian government conveniently uses WPI to measure inflation in order to show numbers far less alarming than the actual ones. CPI (the price we citizens pay) is inclusive of chains of retailers, service taxes, excise duties and more. It’s probably 2 – 2 ½ times the WPI.

Inflation & the Economy (c) colourfultimes.com

While we're busy debating over IPL match fixing allegations, SRK's ban from a cricket ground and stupid actions of Siddharth Mallya, fuel inflation has increased 7%+ as compared to the previous month, while vegetable prices increased a mammoth 61%. IIP (Index of Industrial Production) is gloomy, export figures are being fudged, and the current government is mired in scams. And just a couple of weeks ago, corporate India was begging for rate cuts due to the slowdown in growth. Right! This would give people more money to buy, reduce operational cost of corporate houses and make them profit while we foolishly spend on stuff we don’t need.

The present predicament is also called stagflation, where growth slows but inflation stays high and it’s very 

bad news for a country’s economy.

Yes, fuel inflation is justified because it depends upon the global price of crude. But food prices?

Arresting inflation (c) economicnoise.com

I’ve discussed some reasons for inflation here. The price of primary food items has shot up more than 80% in the last 2 – 3 years. These are essential for survival of a country’s citizens; rich or poor, urban or rural. But precious little has been done to address this. India, in 2011, sat on a 75 – million tonne supply of food, about half of which will get wasted while about 50% of our population will stay malnourished. Sub standard warehousing and storage facilities, infrastructure, transportation & logistics and more contribute to this inflation conundrum we’re facing. Then there’s the huge chain of middlemen and wholesalers. The increase in lifestyle cost has prompted them to hoard food supplies which lead to price rises. And yet, we vehemently oppose FDI in retail – something that could improve these circumstances – easily fooled by the political rhetoric of kiraana stores losing their livelihood. Political parties propose this reform when in power and oppose it when in the opposition. Why? Simply to show how pro – reform they are when in power. Supporting the same when in the opposition will mean potential loss of bragging rights in campaigns running up to the elections.

The government has already stated there will be no major reforms until 2014 (read elections for the Union Government). And what will they offer? Fuel cost cuts, subsidies in food and other incentives which will squander tax payers’ money. All this while, the ‘India Shining’ story is gradually fading away. A 1% drop in GDP leads to loss of 15 lakh jobs in India. And we’ve fallen 2 ½ % in the last 2 years. Should we really vote this government into power again? The Congress needs a jolt! One that makes them realize not to take their seats for granted. Agreed we will lose out for the next few years again due to an even more inept party coming into power, but it things will get better in the long run. Remember how we grew when the Congress came back into power after the BJP lost their incumbency? Politicians are not incapable; they simply don’t want to support growth for fear of loss of voters who depend on their meagre handouts. Maybe they should take lessons from the late YSR Reddy, Naveen Patnaik, Narendra Modi, Nitish Kumar and others.