NEW DELHI: Contrary to finance ministry claims, most experts believe that higher inflation will adversely impact the poor, as India registered 7.8% inflation in April, much higher than the upper limit of Reserve Bank India’s range set for the inflation.
Experts’ opinion is in complete contradiction to what the finance ministry said in its monthly economic review, asserting less impact on the poor than the rich. The combined food and beverages basket has a weight of 45.86% in CPI and there has been more than 8% rise in food items in April, as per the data released by the Ministry of Statistics and Programme Implementation.
Within food and beverages, vegetable prices saw 15% year-on-year rise, while oil and fats prices registered a growth of over 17% in April.The poor spend more on consumption of food items and transport. The fuel prices skyrocketed in recent months, registering a 10.8% rise in April.
“No reason to say inflation will affect poor people less. Poor people have to spend on transport and food items. There has not been much inflationary impact on education and house rentals, which generally financially stable people incur on. So, it is not right to say that inflation will affect rich more and poor less,” said Subhash Chandra Garg, former economic affairs secretary.
Meanwhile Deepanshu Mohan, associate professor and Director at Centre for New Economics Studies, Jindal School of Liberal Arts and Humanities, OP Jindal Global University called inflation an “invisible tax on poor people”.
As per him, India’s tax system is such that it generates a larger share of income from indirect taxes (like GST, VAT) than direct taxes (income, wealth tax). “Because of the tax structure, the burden of tax is the same on all strata of people irrespective of their earnings. The richest pay the same tax for 1 kg of onion as the poor. In a nutshell, it is the poor who suffer the most and the ‘inflation tax’ adds to their misery,” Mohan said.
Inclusive economic recovery will be a challenge for the government as aggregate demand was already weak, wages were low and unemployment rate was already high even before the pandemic hit the country in early 2020. Now with the added burden of inflation, the path to recovery will be difficult, says Mohan.
ALSO READ | Where inflation stands today: Has it hit peak?
Though RBI hiked the repo rate by 40 bps to 4.4% in May from 4% to support the economy, according to experts, there were already repeated warnings and crisis signals, which RBI ignored. “The RBI should have been alert at an early stage. It knew global inflation was going up and the finance minister had also made a comment on inflation in November last year,” Garg said.
Lekha S Chakraborty, Professor at National Institute of Public Finance and Policy (NIPFP), says: “RBI has been late in hiking rates, when globally central banks were raising the rates. Now, with the mounting global uncertainties and risks from the Ukraine war and the fear of capital flight due to the moves by the US Fed to increase their policy rates, RBI has no alternative but to increase the rates,” she added.
Rupee this week plunged to a record low at 77.63 against the dollar and experts say the pressure will further mount on the Indian currency due to inflation, which is a matter of concern.“Mounting inflation will hurt the poor. The government needs to strengthen social security networks and food security measures to protect the poor from rising inflation,” suggests Chakraborty. RBI’s Governor Shaktikanta Das in the last monetary policy had kept an accommodative stance.
Inflation menace
The combined food and beverages basket has a weight of 45.86% in CPI and there is over 8% rise in food items in April, as per the govt data. The poor spend more on consumption of food items and transport. Fuel prices skyrocketed in recent months, registering 10.8% rise in April