Economic Highlights

New Delhi, 25 October 2013

Onions Rs 100 A Kg!

GOVT ENSURES TEARFUL DIWALI

By Shivaji Sarkar

The price of onions is literally bringing tears as it touches Rs 100 a kg. Potato has joined the race and sells at Rs 30 to 50. Even internationally, Indian inflation and stymied growth are matters of grave concern. If the perceived growth engine of the world fails, it has to be a dark Diwali beyond Indian borders, fear international bodies.

The International Monetary Fund (IMF) and the World Bank (WB), have deep anxieties though both have different figures. A major problem in their perception is high inflation stoked by Government measures or failures of it. They feel it might slow down Asian growth as Indian malpractices could become an international standard.

Agriculture Minister Sharad Pawar may say that the Government does not control onions so it cannot check its price. But is it not the responsibility of the Government to ensure supplies at affordable prices?

One area that has escaped notice of all observers and analysts is salt. Mahatma Gandhi had fought against the British colonial ruler over tax on salt some 80 years ago. But the desi rulers have ignored it totally. At salt pans, it does not cost more than 30 paise a kg even today including all expenses. How then are the corporates selling it at Rs 23 to 28 a kg, in some cases more by packaging it the fancy way? Profits in salt are over 1000 times. Nobody has even thought of checking these.  

The stereotypical image of a very poor person subsisting on a few rotis, pinch of salt and raw onions is indeed becoming passé. Today, the poor cannot afford any of it now. Onion and salt symbolize food inflation, which is at over 18.5 per cent now. It sets the basic price of all commodities and has an ultimate bearing on the growth. Higher the price, slower is the growth.

The IMF says that growth in 2013-14 would be around 3.75 per cent. The WB says it may be 4.7 per cent. Both the figures have caused enough discomfort for Finance Minister P Chidambaram as he tries to counter it. The reality is the country’s industrial, manufacturing, core sector and even services growth have stymied to negative levels. In such a scenario if the world organizations have predicted some GDP growth that is surprising.

In some cases as in onion, potato and food grains, the inertia is stated to be for political reasons. The market is controlled by some allies of the UPA Government in Maharashtra and other States. This apart higher prices, it is being said, are funding poll expenses.

Other reasons for inflation are mostly in the realm of Government decisions. These start with higher energy prices for electricity with plethora of fixed charges, even for not consuming it; to high taxes, tolls, service tax and coal, steel, fertilizer and petroleum prices. The latest move is to charge one per cent VAT on each house or flat.

The prices of all these commodities are raised by the Government often for the reason for adding its and private companies’ profits. Prices by petrol companies too are exorbitant. Even at the high international prices, petrol should not cost more than Rs 25 to 30 a litre even if it costs $100 a barrel. But it is priced at over Rs 40 a litre. The prices of steel, fertiliser and other metals are being decided by Government-controlled PSUs.

It sets the ball rolling for further increase in fare and freight by railways and state transport corporations --- all Government owned. As transportation cost increases so do consumer prices. Further, there is no explanation on the extremely high and unrealistic toll on highways and expressways, most of which are in poor shape. Each of these steps forces the consumer to pay more.

The service tax has become a nightmare and many establishments on the sly extort “service charge”, which many consumers feel is the “tax” while it is not. Nothing has been done to stop this extortion.

The corporate are packing less but increasing prices. A 50 gramme (gm) toothpaste pack has been reduced to 40 - 30 gm, 100 gm one to 80-70 gm and in each case the prices have been increased. A chocolate bar has the same length and width but thickness has been less than halved. It is the practice for every product - edible oil, flour, pulses, tea and what not.

In fact, for edible oil and milk the profits have soared as the consumer is sold in litre – 910 gram approx – and not in kilogram (kg). There is no relief for the consumer. Consumer courts do not take suo moto action. The Government departments don’t act. The consumer cannot run for remedies to the consumer courts every day. Even the rupee is no solace. Some groups of traders are now known to be manoeuvring the rupee value. It is importing inflation affecting foreign exchange reserves.

Meanwhile, the usual problems with persistently high inflation are being felt, and not just by those buying onions. The Government is hit by it. Its tax realisation is coming down owing to a poor growth. Expenses are touching the roof. Plan allocations are cut. Jobs vanishing. It all adds to further slowdown.

Indian banks are seeing rising loan-to-deposit ratios as savers move their money into perceived inflation hedges like gold and property. Bank deposits are increasing around 16 per cent, lagging a 24 per cent increase in lending, according to the Reserve Bank of India data. “The shift of the Indian household sector from deposits to inflation hedges such as property and gold is creating a liquidity crunch in the banking sector that's unlikely to be solved in the near future,” says Kristine Li, senior director of Asia-Pacific credit strategy at Royal Bank of Scotland. If banks’ loan growth decelerates, asset quality concerns are likely to return. 

Prices are rising despite good rains and near bumper harvests. Politico-profit nexus has prevented a check. Growth except for table-talk is nobody’s concern. Many experts think that the election could be a turning point in Indian economics and politics. Everyone looks at the elections but should we allow loot to continue for the next seven months? --- INFA

(Copyright, India News and Feature Alliance)