Inflation in India has been on the rise consistently for the past several months and various reasons can be attributed to it such as soaring food and oil prices, among others.
However, most importantly, the sharply depreciating rupee against the dollar is one of the most significant reasons behind it.
India's retail inflation rose to 7 per cent in August from 6.71 per cent in July and this was due to higher food prices. In fact, retail inflation has been beyond the Reserve Bank of India's (RBI) tolerance limit of 6 per cent for eight months in a row.
A rise in food prices has led to a spike in retail inflation and this is evident from the fact that inflation in food basket was 7.62 per cent in August, up from 6.69 per cent in July and more than double from 3.11 per cent in August 2021.
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Earlier this year, crude oil price had touched $130 a barrel. However, in September, it slid to less than $85 per barrel. But now they may rise again as OPEC+, the group of oil-producing nations, has decided to cut down oil production.
Rising oil prices directly impact inflation in India. This can be gauged from the fact that India imports more than 85 per cent of its oil requirement.
As crude oil prices start to rise, imports will also go up, which in turn will widen the current account deficit (CAD).
Widening CAD will further weaken the rupee, as in the face of widening deficit, the country will be forced to sell rupee and buy dollars.
A weak rupee has fuelled inflation in India.
The RBI on September 30 had decided to hike the repo rate by 50 basis points to 5.4 per cent and focus on withdrawal of accommodation to keep inflation within tolerance limits.
In order to control inflation, the RBI has been hiking repo rates since May this year.
Last week, the central bank had also retained its retail inflation forecast for the current financial year at 6.7 per cent.
The Monetary Policy Committee (MPC) of the RBI had observed on September 30 that inflation is projected to remain above the upper tolerance level of 6 per cent through the first three quarters of 2022-23.
Considering the rising level of inflation, the MPC had decided that further calibrated monetary policy action is needed to keep retail inflation within tolerance limits.
Due to monetary policy tightening across the world, and the continuing war between Ukraine and Russia, the global scenario has worsened as disruptions in supply chains have fuelled price rise.
Resultantly, these prevailing situations have fuelled the risks of recession globally.
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This has also impacted stock markets, as India has seen large portfolio outflows worth $13.3 billion during the current financial year.
Volatile global markets have impacted domestic currency and stock markets, thus leading to inflation in India.
People struggle as prices of vegetables, grains shoot through roof in mandis
Skyrocketing prices of essentials has dealt a heavy blow to the public already struggling to recover from the repercussions of the Covid-induced lockdowns imposed in phases since early 2020.
Be it vegetables or foodgrains, the prices have touched the roof right from taking them out of the farms to reaching the common man's kitchen.
Prices increase manifold by the time it reaches the consumer from the farms via markets, wholesaler and the vendors.
The farmer grows vegetables in the field and sells it in the government-mandated markets (mandis), but a lot of expenses get incurred while bringing these to the mandi like the transportation charges while taking it to the arhtiya or commission agent.
In Uttar Pradesh's mandi committees, 2.5 per cent money is paid for the goods of the farmers, while arhtiya also charges 2.5 per cent as commission. Here itself, the price of the vegetable increases by 5 per cent.
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To provide relief to the farmers, the Uttar Pradesh government has reduced the mandi committee rates from 2.5 to 1.5 per cent. That is, farmers now have to pay only 4 per cent of the total price instead of the earlier 5 per cent.
Despite this, by the time the goods coming out of the farm reach the kitchen of the common man, its price hits the roof.
In the market committees, the foodgrains are sold to big and wholesale traders besides the retailers who recover the cost of transportation and the packaging of the goods to be sold and the overall cost of foodgrains.
Right from the farm to reaching the kitchen of the common man, the price of a product costing Rs 10 goes up to Rs 25 to 30. Bad weather, transporters' stir, hiked petrol and diesel prices lead to increased prices of goods.
The journey from the farm to the kitchen is costing more by the day and the budget of the common man is continuously shrinking.
S.P. Yadav, an arhtiya in Ghaziabad mandi, told IANS that when the farmer reaches the mandi with his goods, he brings it here by adding the price of the farm, money spent by labour and the money spent by bringing it to the market.
The commission agent takes 2.5 per cent commission from the farmers and the market committee takes 1.5 per cent after which the price of the goods start increasing.
Combination of 'glocal' factors expected to heat up inflation
Punching new holes, households are expected to tighten their belts as the inflation or prices of essentials and non-essentials are expected to rise in the coming months, said experts and the general public.
Broadly a combination of global and local (glocal) factors -- geopolitical developments, crop production, reduction in crude oil production and the resulting price increase and depreciating rupee -- are expected to heat up the prices.
The heating up of the prices is already happening and will continue to happen.
A top official of a city-based star hotel told IANS that their raw food costs have gone up and is continuing to hike, which have prompted hotels to revised prices of the dishes.
A recent survey of households by the Reserve Bank of India (RBI) showed that most categories of respondents expect higher inflation for both three months and one year ahead.
A larger share of households expects higher prices for all product groups.
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Overall prices and inflation expectations for the three months ahead period were generally aligned with food products, non-food products and cost of services, while they were more aligned with non-food products and cost of services for the longer horizon of one year, the survey revealed.
In India, the retail inflation rose to 7 per cent in August from 6.71 per cent in July.
The RBI on its part is trying to reign in inflation by increasing the repo rate -- the rate at which it lends to the banks.
The central bank has increased the repo rate by 190 basis points in recent times and the last one was by 50 basis points last month.
Announcing the credit policy RBI Governor Shaktikanta Das said: "There are also upside risks to food prices. Cereal price pressure is spreading from wheat to rice due to the likely lower kharif paddy production.
"The lower sowing for kharif pulses could also cause some pressures. The delayed withdrawal of monsoon and intense rain spells in various regions have already started to impact vegetable prices, especially tomatoes. These risks to food inflation could have an adverse impact on inflation expectations."
According to the RBI Governor, the Indian basket crude oil price was around $104 per barrel in H1:2022-23 and expected to be around $100 per barrel in H2: 2022-23.
"Taking into account these factors, the inflation projection is retained at 6.7 per cent in 2022-23, with Q2 at 7.1 per cent; Q3 at 6.5 per cent; and Q4 at 5.8 per cent, with risks evenly balanced. CPI (consumer price index) inflation is projected to further reduce to 5.0 per cent in Q1:2023-24," Das said.
However, one has to see the RBI's prediction as to crude oil prices ($100 per barrel) as the oil producing countries have announced a cut in their production and the international prices going up.
Economists and common man have a different take on RBI's expectations on inflation.
"Presently inflation does appear unlikely that inflation will move downwards for two sets of factors. The increase in oil price and rupee deprecation has potential to increase imported inflation," Madan Sabnavis, Chief Economist, Bank of Baroda, told IANS.
"Second, there have been some shortfalls in kharif production which will mean an increase in prices. Also late withdrawal of rain has affected vegetable crops and also adversely affected the harvest of rice and oilseeds in some regions," Sabnavis added.
The reduction in sown area for rice and pulses during Kharif season is expected to feed inflation in the coming months.
The overall sown acreage for the Kharif season has declined by 0.8 per cent at the end of September 30, 2022 as compared to last year, the Bank of Baroda said in a recent report.
The sowing area of rice and pulses was down by 4.8 per cent and 4 per cent, respectively.
Among pulses, arhar (4.4 per cent), moong (4 per cent) and urad (3.8 per cent) have registered lower sowing.
Area sown for oilseeds (1 per cent) and jute and mesta (0.1 per cent) remain lower compared with last year's levels.
"Any shortfall in oilseeds production will impact production of edible oils and our imports will increase. Presently 60 per cent of our requirements are through imports. With prices firming up there will be automatic transmission that will have an impact on inflation," Sabnavis said.
While the sown acreage of rice, pulses and oilseeds are down, the food inflation will moderate only the production goes up.
"The inflation rate will be 6.5-7 per cent in FY23 and 5.5-6 per cent in FY24," Sabnavis predicts.
With prices of food items going up in the domestic market, the government has taken up measures like reduction in import tariff, limiting the stock of edible oil to prevent hoarding.
The government has prohibited exports of food products like wheat flour/atta, rice, maida etc. to keep domestic supplies steady and curb rise in prices.
The impact of these measures is expected to be felt more significantly in the coming weeks and months, the Central government said.
The rupee depreciation against the US dollar also fuels inflation as imports (crude and edible oils) turns costlier.
According to S&P Global Ratings, the skyrocketing of the US dollar against various currencies in 2022 is posing problems for advanced and emerging markets. The resolution of the issue is not just dependent on economics but also on politics.
The global commodity prices have moderated halting rise in prices of consumer goods.
Beyond the rhetoric: Inflation and unemployment take centre stage
Inflation and unemployment have taken centre stage in the political discourse as the Indian economy grapples with multiple challenges in a tumultuous world.
In a surprising commentary, Rashtriya Swayamsevak Sangh's Sahkaryavah, Dattatreya Hosabale recently expressed concern over the ever-increasing income inequality, unemployment and poverty as "demon-like challenges" which have to be ended.
Hosabale said that in the last 75 years, India has recorded remarkable achievements in many fields, but the number of poverty-stricken, unemployment rate and income inequality in the country still remains a challenge like "demons" and it is very important to end it.
Hosabale said that even today 200 million people in the country are below the poverty line. The per capita income of 23 crore people of the country is less than Rs 375.
He stated that the unemployment rate in the country is 7.6 per cent and four crore people are unemployed. Describing the unemployment situation in both the rural and urban areas of the country as alarming, the senior Sangh leader said that 22 crore people are unemployed in the rural areas while 18 crore people are unemployed in the urban areas.
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The World Bank in a recent report said that inflation in South Asia, caused by elevated global food and energy prices and trade restrictions that worsened food insecurity in the region, is expected to rise to 9.2 percent this year before gradually subsiding. The resulting squeeze on real income is severe, particularly for the region's poor who spend a large share of their income on food.
Amar Ranu, Head, investment products & Advisory, Anand Rathi Shares & Stock Brokers, said India's unemployment rate fell to 6.43 per cent in September 2022, its lowest since August 2018 after touching an all time high of 8.28 per cent in August 2022 as per CMIE. Within the overall data, the urban and rural unemployment fell to 7.7 per cent and 5.84 per cent respectively. The strong employment growth rate is also a reflection of the strong inherent strength of the Indian economy, be it urban or rural centres. A strong demand due to the festive season, demand in the services sector along with steady monsoon rains also likely boosted the employment opportunities especially for gig workers. The Infra led boom which also aids other secondary sectors is also likely to keep the employment momentum strong - e.g. there is a strong demand for real estate which is leading to demand in other related sectors too, thus, creating employment opportunities.
On inflation, Ranu said that post Covid, the government took a targeted approach in helping the worst affected sectors and the rural population unlike its world peers which went on printing an unlimited amount of liquidity in the economy which led to uncontrolled inflation; in a few developed countries, the inflation has been at a multi decadal high.
On the contrary, though inflation is likely to be above the upper tolerance level of 6 per cent through the first three quarters of FY22-23, the calibrated policy action will keep the inflation expectations anchored, restrain the broadening of price measures and pre-empt second round effects. The volatile geopolitical situation, global financial market volatility and supply disruptions may be an overall dampener if they go awry. The consumer and business optimism supported by the festive season demand is likely to hold up domestic economic activity well. However, in the medium term, inflation is expected to be contained within the tolerance level of the RBI.
The CMIE said in a statement that labour market conditions improved substantially in India in September 2022. The unemployment rate dropped from 8.3 per cent in August to 6.4 per cent. This is the lowest unemployment rate recorded by India in the past four years since August 2018. This was not the only improvement.
Stress on the employment front dropped on many other counts. The fall in the unemployment rate was achieved along with an increase in the labour participation rate (LPR). The LPR inched up from 39.24 per cent in August to 39.32 per cent in September. As result of the increase in the LPR and a simultaneous fall in the unemployment rate, the employment rate rose from 35.99 per cent in August to 36.79 per cent in September 2022. The employment rate, which is the proportion of the population of 15 years or more that is employed, is the most important economic indicator, CMIE said.
Labour market conditions improved across rural and urban regions. But, it was rural India that made the bigger contribution to the turnaround in labour conditions. The rural labour participation rate improved by 0.29 percentage points. It rose from 40.39 per cent in August to 40.68 per cent. In June 2022, the rural LPR had fallen below 40 per cent for the first time since the pandemic stricken month of April 2020. It has recovered in each month since then and the performance in September indicates a continuation of that process.
Prices of wheat and atta continue to soar amid govt's price control measures
Despite the efforts by the government to check the spiralling prices of essential kitchen commodities, the average retail prices of these items including wheat and atta have seen a significant rise during the last one year.
The prices of wheat and related products including atta have gone up considerably in the last few months. As per traders in Delhi's wholesale markets, wheat prices have seen a spike, crossing a record Rs 2,570 per quintal due to lower supplies and robust demand.
According to traders in Delhi, the heat wave led to lower production of wheat this year impacting the domestic supplies of the agricultural produce.
Jai Prakash Jindal of Delhi's Lawrence Road Mandi said that the prices have been going up continuously. "Currently, wheat price is at Rs 2570 per quintal. It is likely to rise further to the level of Rs 2600 in the coming days during this festive season," he said.
The mandi prices were ruling at around Rs 2,150-Rs 2,175/quintal since the ban on wheat export was imposed on May 14, 2022.
Jindal said that production was on the lower side this year and the government did not stop export at the right time. "A lot of wheat was already exported by the time the government banned the export of wheat. It should have been done earlier," he said.
Traders said that while wheat prices have registered a rise of nearly 14-15 %, prices of atta have gone up by nearly 18-19 %.
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They said that the reasons for the increase in wheat prices include various factors like the international demand-supply situation, rise in global commodity prices and the conflict between major wheat exporting nations like Ukraine and Russia.
On the other hand, rice prices have shown a decline in the last couple of days. Traders claimed that the prices of Basmati rice have come down by over 10 % following the arrival of a new crop.
Meanwhile, the consumer affairs department in a statement on October 2 said that the retail and wholesale prices of wheat and rice reported a decrease and prices of wheat atta remained stable during last week.
During the last two years prices of wheat and rice have gone up more or less corresponding to the MSP increase during the relevant years. During 2021-22 the prices were comparatively on the lower side because approximately 80 LMT of food grains were offloaded in the open market through OMSS to contain the prices, it said.
The Union government is regularly monitoring the prices of essential commodities including wheat and rice and taking corrective measures where required, it said.
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A senior official said that taking into account the price trends, the government takes various measures from time to time to augment domestic availability and stabilise the prices of essential food commodities and make them accessible to consumers across India at affordable prices. These steps include release from the buffer to cool down prices, imposition of stock limits, monitoring of stocks declared by entities to prevent hoarding as also requisite changes in trade policy instruments like rationalisation of import duty, changes in import quota, restrictions on exports of the commodity etc.
In an attempt to curb rising food prices, the government recently imposed a ban on export of broken rice to increase domestic availability. As India is one of the largest rice exporters in the world, this decision also impacted the global supply chain. The decision was taken due to the delay in planting and deficit rainfall that hit production.
