How ‘POT’ threatens to play a major role in coming elections

In the election year, inflation, especially food inflation, holds the potential to threaten the calculations and game plans of the political parties currently in power.
Image used for representational purposes. (Express Illustrations)
Image used for representational purposes. (Express Illustrations)

Last week, when Mukesh Ambani unceremoniously reclaimed India’s super-rich crown from the Hindenburg-hit Gautam Adani and India savoured Pakistan in cricket, some homemakers in Chennai were huddled together to solve a puzzle. They were unable to squirrel away anything from their monthly spend, like in the past, and save it for the rainy day.

They were, in fact, dipping into their own savings to run the daily show. Hesitantly so, because they knew the promised Achhe Din had charmingly faded away with time. Enough reason for them to break into a cold sweat and explore options before burning a hole in their home budgets willy-nilly.

The RBI’s prophecy of 5.4% inflation for the current financial year after an unusually high 6.5% last year has not brought them peace. It is not aeons ago that the central bank looked on helplessly when POTs (potatoes, onions, and tomatoes) sold like diamonds in the market. Tomatoes may have shed their pretence -- now being sold at Rs 15 per kg in the Koyembedu market, but ginger, garlic, and many others have shown their true colours, helping the food inflation stay above the RBI’s tolerance band. Everyone is unanimous that there are uncertainties galore over the inflation trajectory. Nobody knows how food prices will move when the monsoon rains continue to be erratic. And the crude oil price is on a rollercoaster as ruins mount in the Israel-Hamas war.

None batted an eye when the RBI’s data on the net financial savings of households suggested that it dropped to a two-decade low of 5.1% of GDP in 2022–23. Data showed that it consistently fell from 11.5% to 7.2% in the previous two years. Inflation and falling per-capita income levels have done the dirty trick. North Block was quick to clear concerns and shrug off a potential backlash. There is no distress, it said, claiming that households have been taking advantage of low interest rates to invest in physical assets, such as real estate, passenger cars, and gold. This may be true with HNIs and the upper middle class. A majority of other households were forced to borrow in order to maintain a semblance of the pre-Covid consumption pattern. The proliferation of illegal loan apps in the country and suicides tell us an alternate story. Even if the drop in household savings is partly due to debt-financed asset creation, one should keep an eye on interest rates. Any surge in rates, which cannot be ruled out in the near future, will shove millions of households with heavy liabilities into a debt trap.

Nobody disputes that inflation is an awful creature. Since the pandemic era, we have been fighting it, even at the cost of India’s economic growth. Inflation has refused to bend down its ugly head. It is safe to say that total inflation for the past four years has been easily in excess of 20%. That means whatever you bought for Rs 100 pre-Covid will cost Rs 120 today. Mind you, this is the official figure. You may find your personal inflation to be way above normal.

The latest Hurun Rich List 2023 has thrown up some interesting statistics. Our per-capita income figure will continue to be skewed, thanks to the growth in the number of super-rich in India. The exclusive club of HNIs possessing Rs 1,000 crore or more has grown 76% over the last five years to 1,319. With 67 such individuals in its pocket, Chennai has become the fifth in the city-wise rank list, with Mumbai, New Delhi, Bengaluru, and Hyderabad taking up the top honours in the same order. They will gleefully puff up our per-capita income.

In the election year, inflation, especially food inflation, holds the potential to threaten the calculations and gameplans of the political parties currently in power. They can ignore POT at their own peril.

Anto T Joseph
Resident Editor, Tamil Nadu anto@newindianexpress.com
@AntoJoseph

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