Inflation: the price you will have to pay
Inflation figures just keeping get worse: it is now at the 11.91 per cent mark for the week ended July 5, the highest in thirteen years. The Government, which is preparing for a crucial vote of confidence in Parliament next week, says it is all doing it can and blames global forces outside its control for the inflation. Is inflation in India out of control? How will it impact the common man? And what exactly is inflation?
Inflation is a measure of price rise. The common measure we use in India is the Wholesale Price Index (WPI). It is not an accurate measure of the rate of price rise that you and me experience as consumers because it measures price rises at the input, intermediate and final goods stages while we are concerned with consumer price inflation. There are four consumer price indices, for industrial workers, urban white-collar employers, agricultural workers and rural labour. But these come once a month, which is why the weekly WPI catches the headlines.
Why do we use WPI to measure inflation not the consumer price index (CPI)?
WPI is announced weekly by the Department of Industrial Policy and Promotion, which is why it catches the eye quickly. Consumer prices indices are released monthly. But WPI is not an accurate measure of consumer price inflation, because some of the cost increases may not be felt in the final consumer goods (producers might decided to absorb them by taking a hit on their profits).
China, which has similar problems like rapid growth, high energy dependency and more than a billion mouths to feed, has succeeded in taming inflation and its down to 7.1 per cent. India is still not even talking of inflation cooling down. If China can do it why was not it not possible for India to do it?
let's not forget that it is the low cost workshop of the work and is not constrained by infrastructure bottlenecks like power shortages. So China can increase capacity to meet rising demand. But China also increased fuel prices recently by 18 per cent. In India, every fuel price hike is met with a hue and cry. That said, one should not look at only the headline inflation number which today is 11.91 per cent. If you deconstruct the inflation numbers, you will find that week on week inflation in the case of primary articles and essential commodities has declined. The Finance Ministry says of 320 manufactured items, 281 have seen a price increase.
Is India going to have an Argentina like situation: high inflation, poor rains, bad crops and an unstable political situation?
We have never been profligate like Argentina. Inflation is high no doubt, but I do not agree about the other three aspects. Rains are normal, we have a record harvest and though the government is fighting for its survival, we cannot say the political situation is unstable.
Don’t you think that the main reason for inflation is because of we adopting an American model of development or Russian model of development instead of an Indian model for development?
No, this has nothing to do with development models. The inflation that we experience is imported inflation, because global commodity prices are on the upswing, whether of metals, minerals, oil or food products. In fact, food price inflation in India is lower than elsewhere in the world. Steel prices domestically are also lower. Diesel, cooking gas and kerosene prices are less than what the market would charge.
Can India's foreign reserves be used to reduce inflation/oil prices as Amar Singh has suggested? Has the Reserve Bank of India/Finance Ministry considered this option seriously?
Singh’s suggestion would help contain inflation because it would lower the prices of imported stuff like oil, but it would impact the labour-intensive export industry like textiles. So the Government has to strike a balance between jobs and low prices.
How is inflation in India is related to crude oil price?
Petroleum is used not only as fuel but also as a key raw material for a host of products, like plastics and polymers. So a rise in crude prices has an impact across the economy. The Government only controls the prices of petrol, diesel, cooking gas and kerosene. Prices of jet fuel, naphtha and furnace oil are market-determined. Which is why airlines are facing a big loss and the cost of manufacturing has risen.
No comments:
Post a Comment