The poor bear the brunt of inflation: The Tribune India

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Krishna Raj


Professor, Institute for Social and Economic Change, Bangalore

Inflation and temperature levels in India are soaring, affecting the poor and middle class the most. In contrast, the wealthy are still unaffected as they shelter in air conditioners and opulence. According to sources from the Ministry of Statistics and Program Implementation, Government of India, retail inflation in India estimated by applying the Consumer Price Index (CPI) has risen unprecedentedly to 7, 79% in April since 2014, while India’s average and maximum temperature levels in April rose to 31.35°C and 35.30°C, respectively, according to Indian Meteorological Department records. The assault of the two on the poor is terrible, making them more vulnerable. But nature may show mercy to the poor by lowering the temperature in the upcoming southwest monsoon but high inflation or general price hike has become the new normal for India’s 50 crore poor during the last years.

According to the OPHI (Oxford Poverty and Human Development Initiative) and the UNDP Global Multidimensional Poverty Index 2021, about 22.5% of Indians are extremely poor and struggle to survive on less than $2 a day. Moreover, multidimensional poverty in terms of health, education and standard of living is much lower than monetary poverty. In recent times, more Indians have been pushed into the trap of absolute poverty due to the onslaught of Covid-19, unemployment and high inflation. Retail and wholesale inflation measured in the Consumer Price Index (CPI) and the Wholesale Price Index (WPI) has increased consecutively over the past few months. CPI inflation is steadily increasing from 6.01% in January, 6.07% in February, 6.95% in March and 7.79% in April 2022. WPI inflation is also steadily increasing , going from 13.68% in January to 14.55% in March according to the sources. at the Ministry of Trade and Industry. Even though the Russian-Ukrainian war has exacerbated global inflation lately, inflation in India existed long before the war due to rising fuel and food prices and the government’s price stabilization policy n gave no results. India’s rural poor have borne the brunt of rising prices, with consumer food prices in rural areas rising from 3.94% in March 2021 to 7.66% in 2022. Among the basket CPI food prices, the price increase for oils and fats is around 24.3% while fuel, lighting, transport and communications account for 11%. Even though crude oil prices in the international market have increased to $110 a barrel, central and state fuel taxes account for 55% and 50% of gasoline and diesel, respectively, and remain high in domestic markets. High rates of food and fuel inflation are mainly responsible for the rising prices of inputs and outputs, which has led to an increase in wholesale inflation.

Core inflation, which excludes seasonal variations in food and energy prices, has breached official limits and monetary policies may not yield quick results under these conditions. Moreover, monetary policy alone does not guarantee that retail inflation will stop unless the government shoulders the burden by reducing general prices by cutting fuel tax and relieving food prices by the imports. In fact, monetary policy can succeed in lowering wholesale inflation relative to retail inflation, but at the expense of economic activities. The hike in the repo rate by the Reserve Bank of India from 4% to 4.4% basis points reduces economic activities with an increase in bank interest rates for borrowers rather than lowering retail prices. Rising repo rate will slow India’s economic growth.

World Bank President David Malpass, in his address on “Challenges to Growth, Security and Stability”, observed that “inflation continues to accelerate, reducing real household incomes in the world, especially the poor. For every one percentage point increase in food prices, 10 million people are expected to fall into extreme poverty. The rich can suddenly afford expensive commodities, but the poor cannot. Malnutrition is expected to increase and its effects will be hardest to reverse in children.

India’s 50 million poor, comprising socially and economically weaker sections in rural areas and urban slums, are being pushed into extreme poverty by inflation. Falling wage rates, Covid-19, high rural unemployment, income inequality and high food inflation have far-reaching implications for India’s trajectory towards poverty reduction. The poor are still recovering from the disastrous effects of Covid-19, while inflation is having a diabolical impact on the poor. The cost of living has become onerous as average petrol and diesel prices per liter have doubled from Rs 66 and Rs 53, respectively, in 2015 to Rs 110 and 96 in May 2022, while the price of LPG domestic cooking gas retail has increased. from Rs 600 to Rs 1,000 for the same period. The average prices of edible oils soared from Rs 125 to Rs 200. On average, the prices of pulses, vegetables, edible oils, fruits, milk, eggs, fish, meat and other products increased by 50%. However, average daily wage rates for general agricultural workers in rural India have risen from 224 rupees in 2015 to 286 in 2020, according to the report by the Reserve Bank of India.

The prices of basic food items have increased by 50% in seven years (2015 to 2022), while the real wage rate has increased by 22%. These figures show that inflation has reduced the real income of the poor, making their lives miserable because the food basket constitutes a substantial proportion of the total expenditure of the poor. The net effect is that the poor earn less and borrow to maintain the minimum standard of living. According to the NSSO report, food consumption expenditure in rural India has declined significantly in recent years. Moreover, inflation continues to affect the health and nutrition of children, women and the poor, as calorie intake will be drastically reduced. Therefore, proactive government intervention is needed to control food and fuel inflation, increase employment in rural areas, reduce income inequality, strengthen public distribution of essential commodities among the poor, and improve the rate of average daily wage in rural India. These policy measures will significantly reduce the cost of living and reduce the impact of inflation on the poor.

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