Chief Minister Uddhav Thackeray may have assured farmers of speedy compensation for crop damages in floods triggered by last week’s incessant rain but the state’s fiscal managers are also staring at other economic concerns.
Food prices, which account for close to half of the inflation basket, are expected to rise sharply with the heavy rainfall damaging harvest-ready crops and causing a spurt in prices of onions, tomatoes and other vegetables.
“Food inflation had already been soaring during the lockdown due to supply side disruptions. This will only further worsen the situation,” a senior official said.
On Wednesday, just as the Chief Minister visited flood-hit areas in Osmanabad district and assured farmers of speedy relief, senior officials in the state secretariat warned the state could enter into a phase of stagflation, which means lofty inflation amid rising unemployment and stagnant demand.
With business activity and consumption set back by a fresh wave of infections, the state government’s economic forecast has earlier projected a 16.4 per cent contraction in its economy in terms of gross value added for the year ending March 2021.
“The growth is expected to contract in 2020-21. In gross state value added terms or GSVA, the economy will likely see a 7.4 per cent plunge in the October-December quarter from a year ago. The state’s GVA will shrink by 16.4 per cent by the year end,” a report of the state Finance department has forecasted.
According to latest estimates, standing crop on over 10 lakh hectares has been impacted due to heavy rain and consequent flooding in the state over the last few days, with farm areas in Solapur, Pune, Satara and Osmanabad the worst hit. Sources said the state’s Cabinet will soon meet to announce a relief package for the affected farmers.
On Wednesday, a Congress delegation met Thackeray to demand a relief package of Rs 25,000 per hectare for farmers. While this is on the higher side, a compensation on the basis of state’s Disaster Relief Fund norms itself works to a total of Rs 683 crore, which itself will be a tight rope walk given that the state’s growth rate has been slipping. “Increasing inflation will only add to the woes,” a senior official said.
Ironically, the agriculture sector, which contributes around 11 per cent to the state’s gross state domestic product, was the only one to have weathered the pandemic recession, and was set to register a “strong growth” before the heavy rain struck at the end of the monsoon.
With the food price index expected to soar further this month both in rural and urban areas, officials said the consumer price index (CPI), which was reported at 6.73 per cent in July, will rise further. This inflationary trend comes at a time when the state’s unemployment rate has been climbing and job losses have been reported from both rural and urban sectors, stoking fears of stagflation. Senior state officials have advocated early intervention at the supply side for farm products and increase in public consumption expenditure to curb the trend.
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