Analysis Household
Budgets Zoom
as High Prices Pinch Indians
By Arvind Padmanabhan
New Delhi
Just a month ago, Sujata Jha, a homemaker, was buying bananas for Rs.24
a dozen. But today, she reluctantly doles out Rs.36 for what is
considered the staple fruit of an average Indian. With prices hitting
the roof across the country, she is not alone in feeling the pinch.
As the world battles to rein in prices, with even food riots in some
countries like Haiti, India too is waging a war against inflation with
economists seeing little respite in the short-term and policy makers
admitting that food shortage is making damage control a difficult task.
From the poor in the rural settings of Punjab to the affluent in Mumbai,
all are having to adjust their budgets to fight the price rise that has
pushed the inflation rate to the highest levels in 40 months at over
seven percent and sharply higher than the tolerance level of five
percent set by the central bank.
"Usually, vegetables are reasonable around this time, but not this year.
I am buying green peas at Rs.25 per kg now. It was just Rs.10 per kg
last year. My budget has gone for a six," rued Rintu Roy, a homemaker in
Vasai, a suburb in Mumbai.
Nirmala, a housemaid in Chennai who hails from Kerala, said: "Tapioca is
our staple food. We used to buy it for Rs.8 a kg. Now it is Rs.15 a kg.
How can I buy it for my five-member family?"
"My income is the same but expenses have shot up," she said.
In this backdrop what do official statistics say? In three months alone,
wholesale prices of bananas have shot up 18 percent, fruits and
vegetables are dearer by 14 percent, lentils are costlier by eight
percent and edible oils cost six percent more.
Since the statistics are based on provisional data, there is an
underlying fear that the actual quantum of price rise may have been
higher. For the week ended Feb 9, for example, the annual inflation rate
based on provisional data was 4.35 percent, while final figures
indicated a much higher rate, 4.98 percent.
"With the cost of living going up by 50 percent a month, spending on
household goods like appliances and fixtures has come down," said Namita
Kulkarni, project leader at the Bangalore-based software and outsourcing
major Mphasis-EDS India.
"For instance, it is a year since we bought a flat, but we still don't
have the curtains. We have postponed any further spending on our flat by
a year as we have to first pay the home loan amount," she added.
To top it all, buffer stocks of food grains with government agencies are
at precariously low levels and fresh procurement in important markets
like Punjab and Haryana has been slow, giving little elbowroom to
policymakers.
In Punjab, the six major procurement agencies, including the central
government-run Food Corporation of India, have procured just over
one-fourths of the total expected target this season.
"Our agencies have procured 2.77 million tonnes of wheat so far. Though
the procurement started April 1, much of the wheat started arriving only
in the past week," Punjab's Food and Supplies Director S.P. Singh told
IANS.
Amid such a situation, global agencies like the International Monetary
Fund have warned that social unrest due to high food prices seen in
countries like Egypt, the Philippines, Indonesia and Haiti could spread
to other countries.
"If we want to avoid this huge rise in commodity prices, especially food
prices, having terrible consequences, then we need to do much more about
this problem than has been done until now," said IMF managing director
Dominique Strauss-Kahn.
"World food prices have risen 45 percent in the last nine months and
there are serious shortages of rice, wheat and maize," Jacques Dious,
director general of Food and Agriculture Organisation (FAO), told a
conference in New Delhi.
"Some serious steps are required to come out of the situation," he said,
adding that the global food stock at 405 million tonnes was the lowest
since 1980 with supplies of only 12 weeks in the case of wheat and rice.
Little wonder even Prime Minister Manmohan Singh said last week that a
steep rise in the prices of food and essential commodities was making
inflation management a rather difficult task and could hurt India's
macro-economic stability.
"Sharply rising food prices can slow down poverty alleviation, impede
growth and retard employment generation. A steep rise in food prices
will make inflation control more difficult and hurt the cause of
macro-economic stability," he said.
Finance Minister P. Chidambaram said: "It will take some time before the
inflation further moderates. Do not expect miracles. What can we do if
the price of crude oil or urea or other fertilisers goes up in the
international market?"
But the opposition has been unrelenting in its attack on the government.
And even the Left parties that prop the United Progressive Alliance (UPA)
government have joined the chorus of protests.
"The Manmohan Singh government must justify its existence. It seems like
there is no government in place," said Communist Party of India (CPI) MP
Gurudas Dasgupta. "It is a shameful surrender to delinquent market
forces."
But it is not that the government and the central bank have not taken
steps to curb inflation - the export of some commodities like rice and
edible oils have been banned while the cash reserve ratio has been hiked
to check excess liquidity.
But economists feel while these measures are expected to yield results,
they may not bring immediate results since this time around the
situation globally is adding to India's problems.
"Inflationary trends will persist over the next few months, since
manufacturing capacities have been fully utilised," said Mahesh Vyas,
the managing director of a leading think tank in Mumbai - the Centre for
Monitoring of Indian Economy (CMIE).
"Until new capacities are added, prices will remain on the higher side,"
he said and added that from food grain to edible oil and from cotton and
textiles to steel and cement, there were inflationary expectations from
all sides.
"The hike in cash reserve ratio will contain inflation to some extent.
But the solution lies in expanding production and reducing import duty
on products like the government did on palm oil," said U. Shankar,
professor at the Madras School of Economics.
(With inputs from Jaideep Sarin in Chandigarh, Azera Rahman in New
Delhi, Varda Bhatt and Abhijeet Deb in Mumbai, Papri Sri Raman in
Chennai, Fakir Balaji in Bangalore and Mohammed Shafeeq in Hyderabad)
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