The news that retail inflation has come down below the RBI’s benchmark upper limit of 6% should be welcome for the ruling BJP going into the State polls in the next couple of weeks. Data released by the National Statistical Office (NSO) last week showed that Consumer Price Inflation (CPI) was at 5.02%, down from 6.8% in August. Prices of everyday use items — such as vegetables, cereals, even clothing and footwear — had moderated somewhat. A measure of the softening of vegetable prices can be had from the prevailing prices of tomatoes. These were only a couple of weeks selling at over Rs 200 a kilogram. Now these were available at less than Rs 20 a kilogram. That may explain in part the NSO data which shows that food inflation has declined from 11.5% to 6.6% during the July and September period. Post-monsoons, it is normal for the prices of vegetables to register a decline. Remarkably, the price of the staple cooking medium, edible oil, too has moderated during the same period. So have the prices of food, milk, cereals and prepared meals, though prices of fruits, eggs and meat saw a little increase. However, there were concerns that due to higher demand during the festival season in the next couple of weeks some of the everyday items may see a price spike. Also, the likely impact of the El Nino phenomenon had thus far been moderate. Even the fear that the dry August could impact the kharif crop was largely belied by the more than usual rains in September which was over 13% above normal. Meanwhile, the official data revealed that the contraction in exports had narrowed to 2.6% in September. After the revision of data for exports in August, the Commerce Ministry said, there was a 3.9% growth as against 6.9% contraction as estimated earlier. With imports contracting at a faster rate in September, the trade deficit for the month was registered at $19.4 billion. There was optimism that exports would pick up in the current month, especially to the Asian and Pacific regions. Overall, the outlook for the current account deficit remained positive.
However, an element of uncertainty was the geo-political situation which cast a shadow on the stability of the crude oil prices. The on-going conflict in West Asia is a cause for concern, especially if Israel’s counter attack on Hamas escalates into a wider conflagration drawing in the oil-exporting monarchies in the region. So far India has managed its crude oil requirements rather well, importing discounted crude from the sanctions-hit Russia. But a wider conflagration in West Asia can cause an unmanageable volatility in retail prices of petroleum goods. As it is, the oil marketing companies have been made to absorb the higher cost of petroleum products, including liquefied petroleum gas, probably with an eye on the coming State elections. The government too has raised the amount of subsidy per LPG cylinder given to poor households under the PM Ujjwala scheme from the earlier Rs 200 per cylinder to Rs 300 per cylinder a few days ago. Nearly 10 crore households are registered under this scheme.
Meanwhile, the constant tussle between the consumers and producers of food invariably has resulted in the government tilting towards the more numerous consumers. It is easy to forget that farmers too are consumers, relying on the market prices of all other goods other than their own farm produce. That would explain the recent sense of unease among, first, rice growers and later wheat and onion growers. India being a major exporter of rice accounting for nearly 40% of the global trade its decision to ban all exports immediately pushed up the price of rice world-wide. Poor people in Africa were the most affected. However, the ban had the intended effect insofar as it moderated the price of rice in the domestic market. We can expect the government keeping a hawk’s eye on the consumer price-line in view of the State elections ahead and, a few months later, the parliamentary poll. Voters as consumers of everyday goods help concentrate authorities’ minds on the price-line.
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