NEW DELHI: Retail inflation in June was at a record 18-year low of 1.54 per cent, answering the question — why farmers were protesting across the country. The country is in the midst of a severe food oversupply, say experts, and farmers are selling their produce for prices less than what they spent growing them.
“It is also a reflection of demonetisation, when farmers did not have cash to buy seeds for Rabi season. The lack of resources, borrowed money, bumper crop and low demand reflect today’s inflation numbers and farmers’ distress,” says economist Arun Kumar.
Painting a further grim picture of the economy, factory output for the month of May grew at a meagre 1.7 per cent, compared to 8 per cent last year.
“The subdued growth in manufacturing is worrying as some major sectors like capital goods, automobile and textiles have shown degrowth. This underlines the need for major reforms to improve the investment climate,” said industry body FICCI secretary Didar Singh.
It was food prices, that have a weightage of 49 per cent in inflation calculation, which brought the overall numbers down. “Vegetable prices are in negative territory for the 10th straight month and pulse prices for the 7th straight month on yearly basis,” says Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI in report.
“Low inflation is not necessarily a good sign in the long run…,” says Seema Sharma Economist at IIT Delhi. More so because current numbers fall below the Reserve Bank of India’s ‘tolerable levels’ that ranges between 2 and 6 per cent.
“It is a bad sign… RBI will not be guided by June numbers, but by what happens in July, because it is the first month of GST and it will try to examine the impact on economy. It’s likely that RBI may hold current rates,” said Kumar, indicating that the new tax regime might make a repo rate cut unlikely.
The government, however, has a different perspective. It feels these are reflections of a consolidation process in the ongoing macroeconomic activity. “The number of 1.54 per cent is historically low and reflects the firm and ongoing consolidation of macroeconomic stability,” Chief Economic Adviser Arvind Subramanian said.
Tomatoes, however, defied economics with prices skyrocketing above `90 in Chennai. Traders blamed it on demand in Andhra and Karnataka.