Meat and fish eaters beware! The price of your favourite chicken, mutton and hilsa are rising at a double-digit rate close to 19%. Not that you would be better off if you were the vegetarian variety either, since vegetables at 11% and pulses at 16% would burn a deep hole in the pocket equally.
Even as India completes five months of a pandemic-induced lockdown and experts continue to debate the possible shape of a recovery, the scourge of inflation seems to be creeping up slowly. The latest inflation data of the Consumer Price Index-Combined for July 2020 released by the government suggests that the rate at which prices have been rising has breached the psychological mark of 6% and is at 6.93%. A large part of such inflation is driven by food inflation, which has risen to 8.71% from the 7.29% the previous month.
However, there are wide regional variations. While the northern states of Delhi, Punjab, Himachal Pradesh and Rajasthan demonstrate relatively lower inflation rates (average of 5.73%), the same in southern states—Telangana, Andhra Pradesh, Tamil Nadu and Kerala (average of 7.28%)—is higher than the national average. The highest inflation (average of 8.37%) is however exhibited by the eastern states, particularly Assam, Chattisgarh, Jharkhand, Bihar, Odisha and West Bengal. Interstate variations are even wider, with consumers in Assam facing a 11.24% inflation as opposed to those in Delhi (3.6%). States would need to do some soul-searching to understand the reasons why some of their peers fare better than others.
Moreover, the Wholesale Price Index data for July released by the government just a day later reveals a negative inflation of -0.58%. Food inflation at 4.08% is less than half the rate displayed by the consumer price index. The CPI-WPI gap stands at a whopping 7.51%. How does one make sense of these widely divergent price trends between the Wholesale and Consumer Price Indices and the resultant gap? The answer to this lies in the basket of goods comprising the WPI and the CPI, which are vastly different, and the underlying weaknesses of India’s economy.
While the WPI comprises chiefly manufactured goods (64.23%), it is food that constitutes much of the CPI at 45.86%. And thus, while a rising CPI has been due to food prices increasing, it goes beyond that. Food prices received by the farmers—the wholesalers of food—have either crashed or haven’t risen enough, due to the lack of staying power on the part of farmers. With supply chains hit, retail prices reflect a lack of adequate supply, accounting for the divergence between the food prices at the wholesale and retail levels. A deep dive reveals dimensions that require a different approach to resolving such food inflation.
The steep rise in the price of meat, fish, eggs, pulse and pulse products, and vegetables indicates that Indians are eating more nutritiously and a more protein-vitamin rich diet. This is good news. What is not is the fact that such inflation is more than a mere demand problem. It has to do more with a paucity of supply. The government tries to encourage farmers to produce and supply food crops through a system of Minimum Support Prices (MSP).
However, such MSPs have been fixed for 20 food crops, including seven cereals (paddy, maize, jowar, bajra, wheat, barley and ragi), five pulses including tur, and eight oilseed crops including soybean and sunflower. No such support is given to the animal food-based sectors, nor to farmers of vegetables and fruits. Take the case of the wholesale prices of meat, fish and eggs with a WPI inflation of 5.27%. With MSPs of crops such as maize, bajra, soybean and others used as animal feed going up, and the resultant higher open market prices of such cereals and pulse products, poultry and dairy farmers face higher production costs.
Higher prices received for such products would then be unremunerative in the face of higher input costs. Besides price concerns, these farmers also suffer from lack of awareness regarding disease management and face issues such as high mortality rates of poultry, lack of government concessions and the negative perceptions associated with animal products when faced with recurrent epidemics. There are also issues regarding Indian agriculture’s high dependence on and vulnerability to monsoons, lack of adequate storage and warehousing capacity within agriculture, as well as poor road and railway infrastructure, which prevent timely supplies of agricultural produce.
Going beyond agriculture, the WPI reflects that the manufactured products’ inflation at 0.51% is at the same level as it was in February 2020. This indicates that at the root of the collapse of the manufacturing sector has been an overall recession, which goes beyond the pandemic. The problems with India’s inflation are structural. While pandemics and like crises exacerbate existing anomalies and weaknesses, blaming it all on Covid-19 will be akin to an ostrich burying its head in the sand. This time is no different! (Views are personal)
Professor of Economics & Chairperson of Family Managed Business at Bhavans SPJIMR, Mumbai (firstname.lastname@example.org)