- Make no mistake, mentioning that the citizens across the globe are reeling under the pressure of inflationary trends owing to the pandemic as well as the ongoing Russia-Ukraine war will be an understatement. Add to the mix the global supply chain getting disrupted due to the stringent lockdown measures in China on the back of the recent Covid surge, and the recipe for involuntarily welcoming further disaster on humankind is complete. The economic downturn being witnessed around will showcase how disastrous these last couple of years have been for the global community.
PC: Jeff Horwich
- The Indian situation is not better either since the struggling economy is bombarded with one mounting challenge after another on similar lines. Needless to mention, the common citizens are at the receiving end looking for much-needed but elusive respite all these months. As you are aware, newspaper reports mention that the retail inflation for April was 7.79%, the highest level recorded in eight years. This is something that really should worry the concerned stakeholders no end. More importantly, for the fourth consecutive month, it breached the benchmark of 6% which represents the Reserve Bank of India’s upper limit of tolerance under its statutory inflation-targeting mandate.
- Apparently, the surge was led by food inflation of 8.38%. Looking around would reveal how the food rates have steadily gone northwards over the last several months. Worryingly, a granular look at different items of the consumer price index shows that inflation is now broad-based. Moreover, even in cereals, where India has a surplus, inflation is 5.9%, indicating that expectations of a continued increase in prices are entrenched. Along with inflation, data on industrial output in March was also released recently. Delving further will reveal that overall output in March grew 1.9% over the previous year but both consumer durables and nondurables contracted.
PC: S. KAMAL HAYDER KAZMI
- Now, when this data is juxtaposed with the anemic growth in the volume of large consumer goods firms, it’s clear that India is beset with both elevated inflation and weak consumer demand inter-alia. Thus, the prevailing situation calls for adjustments in both monetary and fiscal policies where both the RBI and the Government of India are expected to play decisive roles. RBI’s focus should be on monetary tightening, characterized by sucking out liquidity in the financial system and increases in its policy interest rate. This leaves the Union Government with the task of tweaking fiscal policy to ease the pressure of elevated inflation on household budgets.
- Yes, the latter will benefit from a jump in tax revenue as firms raise sales prices as nominal economic growth forecast to be well over the interest rate on government debt will ensure sustainability. Thus, lowering taxes on pump prices of fuel becomes imperative. Also, it will simultaneously lower what states collect from fuel as their collections are linked to the level of the Union Government’s taxes. In conclusion, household budgets need relief and at this juncture, it can only be the fiscal policy that provides it. Paradoxically, unavoidable political compulsions will have a definite bearing on some of these financial decisions in the coming days.
