At a time when most economies in the world are reeling under deflationary pressure, India stands isolated with intimidating inflationary pressure. And believe me it’s a very dangerous situation when it comes to food inflation in India. I have actually seen my kitchen bill rising like anything every month. I was shocked to see my kitchen bill in Nov 09; it has swollen by around 75% as compared to Mar 09 figures. This is my own experience with mounting inflation in my country. Let’s see what the government’s estimates talk about inflation.
Primary articles inflation up. For the week ended 28th Nov ’09, the annual rate of inflation for primary articles stood at 13.9% (yoy) against 12.5% for the previous week and 11.6% during the corresponding week last year.
Food inflation at a decadal high. Inflation for the primary food surged to 19.1%, the highest level in a decade. Food inflation has reached the same level of Dec ’98 when the then ruling National Democratic Alliance (NDA) had lost power at the centre because of high food prices. Therefore, there will be huge pressure on the current government to tame the mounting inflation.
What’s the outcome? We expect the government to take some measures to rein in high food inflation. But the irony is that the government does not have many options to control food prices. Even if it opts for imports, it is not going to help because international prices of most of the food items are either higher or at par with the domestic prices. It also can not offer highly subsidized food due to tight fiscal situation. Nonetheless, to avoid the political pressure the government should be seen doing something to tackle the high food prices. Thus, we would not be surprised to see some actions coming from the Reserve Bank of India (RBI) earlier than expected. A hike of 50 bps in the cash reserve ratio (CRR) seems imminent. Moreover, the probability of a hike in the repo/reverse repo in the current fiscal has also increased.
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