Khaas problem for aam aadmi

But some issues of inflation management lie deeper. The petroleum minister admitted that limited storage facilities have reduced the ability to take advantage of the low prices in the international market. The key point is of stock management. Though a fuel price cut when it happens will stem inflation, it is issues such as stock management that will have a more lasting impact on inflation management in the long run.

Again, the last year has seen extremely volatile commodity markets, especially in minerals. Zinc, nickel, aluminium, copper and bauxite shot up but these price rises have now moderated. What is alarming is that the global commodity markets have recently seen major volatility in the futures markets for agricultural goods. This has been showing up especially in wheat and corn markets.

In 2006, India imported wheat after a gap of almost six years, a surprise to world markets. Consumption in India has been expanding faster than production and with food stocks running low, the government had no option but to take recourse to imports to curb the price rise in wheat. But the imports came at a time when international wheat prices were volatile and rising. Even with the fire-fighting, the latest WPI data shows a rise in wheat prices by 17 per cent. Though the ban on wheat imports has been lifted till the end of February, and India is gearing up for a bumper wheat harvest, we may well be again confronted with high international prices.

Agricultural policy needs a major rethink; mere tinkering will not suffice any more. It is crucial to work towards increasing productivity levels and better access to markets. The PM has consistently highlighted the urgency for raising agricultural growth rates, but substantive action is yet to materialise.

And what does all this mean for the “aam aadmi”? The Food Articles segment in the WPI has registered the highest rise in the latest data (see Table) and this has important implications for household budgets. Consumer price indices in which food items have a larger weight have reigned well above 6 per cent since August. Depending on who you are and where you live, the impact varies. A worker in the urban non-manual sector in Delhi would have seen inflation rise at 6.1 per cent in November while his counterpart in Surat would have faced an 11 per cent rise in prices.

The maximum hit has been taken by the farm workers — the All India Consumer Price Index for Agricultural Labourers shows highest inflation at 8.49 per cent for December, though an agricultural labourer in Tamil Nadu would be at ease with his 2.51 per cent rise. But Tamil Nadu, Kerala and Manipur are the only states with a CPI AL below 6 per cent, the situation is grim in other parts of the country — a labourer in UP would have faced 13.04 per cent, Bihar saw a 12.39 per cent rise and in MP the CPI AL grew at 12.64 per cent. Inflation, therefore, is not limited to larger cities or urban areas.

To what extent is the government responsible? Could it have created counter-inflationary pressures strong enough to prevent such price rises? With such sustained high growth, it is natural that there will be increasing upward pressure on prices. The government needs to generate expectations of increases in low cost supply and ensure that the confidence in the Indian economy is sustained. The best tools to fight inflation now lie in liberal economic policies, control over the deficit and overall sound macroeconomic management — all of which will need more commitment from the government than we have seen so far.

Kale is chief economist, Indicus Analytics. This article has been written with Laveesh Bhandari, director, Indicus Analytics