The Price Rise Issue - Only Takers, no Solvers

In a recent sample survey conducted by the reputed Centre for Study of Developing Societies (CSDS), about 40% of the respondents mentioned that "price rise" was the single most important voting issue for them. The number was almost four times more than that for the next important issue, "development and economy". Corruption stood sixth, being mentioned by 6% of the respondents.

Now this is certainly not the picture we would get if we checked the news media – both television and print -- where corruption and national security seems to always hog the brightest limelight. The visible anger we see among the public when their opinion is asked about the government and the polity in general is more an outcome of their daily bread and butter issues than any abstract notion of their preferred ideology or direction of government policy.

Inflation figures released by the government based on the Wholesale Price Index – WPI (that is a weighted average of prices of a basket of commodities in the wholesale market) show that prices rose by 5.79% for July 2013 as compared to the same month in 2012. The globally more preferred Consumer Price Index (CPI) - that is calculated by looking at prices at retail markets, from where consumers buy goods – is no longer the main marker of inflation (what is called as headline inflation) by the government. The focus on WPI is possibly because the CPI figures were an embarrassment for them. The national CPI rate of inflation for the month of June 2013 was considerably high at 9.87%. 

The rate of food inflation in particular has been high for quite a long period, with latest figures in July (WPI) showing a near 12% increase in prices since a year ago. Vegetable prices in particular have shown a whopping 47% increase over the year, so much so, that news reports point out that even middle class families have cut down on their vegetable expenses, and are narrowing down their preferred diet.

Food articles form the most important consumer purchase and the reasons are obvious. The government’s own statistical surveys point out that food expenses constitute close to 50% of average household expenditure. For the poor, this is as high as 60%. It is clear as to why the Indian electorate is most bothered about price rise, especially food items. But is this resulting in a political response to the issue of inflation?

This writer remembers attending a large public rally of the anti-corruption movement led by Anna Hazare in New Delhi a couple of years ago. I asked several participants – which included many people from urban poor and working class sections – as to what motivated them to take part in the rally. Many of them told me that they believed that Anna’s movement will finally help address the price rise problem and that they would be able to benefit from it. This was despite the fact that the movement was primarily anti-corruption driven and had a single minded pursuit of the institution of the Lokpal. In other words, the popularity of the Lokpal movement had to do with expectations among the urban poor that the core issue of price rise shall also be addressed. Interestingly this was not limited to India alone.

Barely a few months after the rally, I had visited the neighbouring and land locked Nepal, whose economy is very much dependent upon India. While travelling in a taxi, I asked the driver as to what was his main concern with his government (Nepal was and is still going through a phase of drafting a new Constitution through a popularly elected Constituent Assembly). He mentioned that it was the cost of fuel and essential commodities which had gone up severely. He also said, “but at least in India you have Anna Hazare to take on the government and who shall bring down prices sometime soon!"

Despite this definite anger and frustration among large sections of the public with the increasing prices of food, fuel and other essential commodities, there seems to be very little meaningful responses among our polity, either in government or in opposition to articulate this concern at the political level. The main opposition engages in a token nationwide strike now and then, but it does little to the extent of sustained campaigns in raising the issue and making the people aware of the reasons for the price rise and how it can be mitigated. Rarely does it engage in mass mobilisation to pressurise the government to apply solutions.

This tokenism is partially because, virtually the entire political class, barring smaller parties such as the Left and some honourable exceptions across all parties, has become the new elite in India. Metrics based on declared assets suggest that legislators – both in the centre and in the major states - have significantly increased their wealth over the past few years owing mostly to patronage and cronyism. Massive increases in personal wealth and the already existing privileges that legislators receive, has possibly ensured that there is little concern for the pressing issue of price rise, beyond token protests, as the “political class” hardly feels the pinch of price rise impacting upon their own livelihoods.

It is also another matter that despite frequent discussion on the issue of price rise, meaningful protests specifically conducted against price rise by working class organisations has got little attention in the media. It is much more exciting to cover the rage against corruption than against price rise. Could it be because the media itself is part of the elite? Some would argue that it is certainly the case.

There are innumerable analyses for the reasons of this continuous rise in prices of food over the past few years. The government recently claimed that demand factors – supposedly rising consumption of a wider range of food articles among a better off population – has been the reason for the rise in overall food prices. But evidence has proved that such an explanation is at-best incomplete or false for it is not only non-food grain items that have seen rising prices, but even cereals and pulses. Several researchers have pointed out supply side factors – relating to food grain storage and distribution and tellingly the deregulation of fuel prices. Rising costs of agricultural production and transportation due to increased diesel prices has had a direct effect on consumer prices of food items.

Little has been done to insulate the low-income Indian population from global oil price pressures and this coupled with domestic mismanagement of food distribution and storage has resulted in this situation of persisting food inflation. Deregulation of fuel prices – what is meant by the doing away of the administered price mechanism and linking them directly to the market – was justified by the government in order to address the profitability of oil marketing companies (OMCs) and to reduce the high burden of fuel subsidy.

Economists have pointed out that considering taxes and returns from the petroleum sector, government revenue from the petroleum sector was higher than the subsidies incurred in it. As regards “under-recoveries” (notional losses) by the OMCs, economists and bureaucrats such as former Planning Commission official Surya Sethi have pointed out that this is a dubious concept that hid away the fact that most OMCs were actually profit making before fuel price deregulation.

Indeed, the government seems at a loss to understand or do anything about inflation. The one institution that is bothered by inflation is the Reserve Bank of India which has used its chief instrument, the interest rate, to address the problem. By seeking to curb demand by raising interest rates, it did help in bringing down WPI rates of inflation to some extent, but this only hurt economic growth by dampening investment and lowering credit to productive sectors. Meanwhile retail inflation has continued to persist hurting the Indian people most in crucial areas of their family budget – expenditure on food and essential items.

There certainly needs to be more drastic action, at least a return to the administered price mechanism for fuels to curb this component of the price rise and more long term measures to improve the state of India’s agriculture, food distribution, storage and management. Nothing less would assuage a population that seems to be seething about the inflation problem.

Srinivasan Ramani (srini@epw.in) is the senior assistant editor with the journal, Economic and Political Weekly, and his twitter handle is @vsrini