How many times in India have we witnessed opposition political parties creating hullabaloo over high inflation against the ruling party?
Take a recent example of the opposition stalling Parliament proceedings over high food inflation. Before that, the NDA and other political outfits had also called for a 12-hour ‘Bharat Bandh’ on July 5 on the burning issues of hike in fuel prices and untamed inflation.
Economic Growth and Inflation are said to be 2 sides of a same coin. Sustained growth triggered by rising aggregate demand can lead to acceleration in inflation as the economy consumes its scarce resources, leading to inelasticity in the near-term supply side dynamics.
Unfortunately, in most cases the finance minister of the ruling party postulates the root cause of high prices as supply-side constraints, backed by the robust domestic demand fuelled by growth, to shield itself from the spiraling inflationary scenario and accelerated food prices.
Moreover, the inflationary trend is prevalent not only in food articles but across the board – be it in the form of education, healthcare, consumer durables or even transportation costs. The longevity and stubbornness of thriving inflation raises one very interesting question in the mind:
In fact, speaking about Indians becoming more immune to Inflation, reminds me about our Media channels. The manner in which the Media people broadcast the inflationary issues on their NEWS channels, it gives a feeling that they are certainly adapt in making a mountain out of a molehill.
Prices of most pulses are high due to demand-supply mismatch and people are prompted to pay as high as up to Rs.100 a kg for selected variety of pulses. Consumers are hit badly as retail prices of most food commodities are ruling about 50% higher than the wholesale market. Thankfully, sugar prices have slumped more recently from its yearly highs.
It is said that Indians, now, have become more used to the price rises than ever before. Potato prices have already soared in the retail markets at Rs.20 per kg. Moreover, Pakistan has started importing potatoes and tomatoes from India after floods in the country destroyed the crops. This could lead to further hardening of prices in potatoes domestically.
Tomato prices are already quoting sky-high at Rs.40 per kg in India. Thus, even the most basic food items, used by rich and poor both, like potatoes and tomatoes are not spared from the hit of inflationary monster.
Higher CPI has co-existed with high consumer demand for almost two years now. For a country like India which is used to an average inflation of less than 5% from 1996 to 2006, the sustenance and tolerance of high double-digit inflation by the Indian public, for as long as last 2 years, comes as an unfamiliar development.
One reason of this increased tolerance level amongst the public could be rise in income levels. Post recession, there is a marked surge in attrition levels – signaling rebound in the salary and wages of employees of private firms. In fact, the Sixth Pay Commission has also played a significant role in providing boost to the overall wages of public sector employees.
On the national level, even government has increased its spending on various infrastructural and social sector spending programs such as Pradhan Mantri Gram Sadak Yojana and National Rural Employment Guarantee Scheme among various other state-owned initiatives.
Emergence of Rural BPO sector has also played its own role in ensuring incremental job opportunities going deeper and remote into the Indian villages and towns. More demand begets more jobs. And, more jobs can translate into higher income and spending ability.
Once higher rural spending by the Centre and job opportunities spurred by the higher economic growth start trickling into the economy, it leads to gradual spurt in demand for various high-end goods and services. Take, for instance, higher rural income could call for a higher demand for consumer durable goods such as LCD televisions, microwave ovens, refrigerators or even mobile handsets.