Economic Highlight
New Delhi, 18 October
2021
Gati
Shakti Success
INFLATION
CHECK MUST
By
Shivaji Sarkar
The Prime Minister Gati
Shakti mega master plan launched is aimed at coordinated infrastructure schemes
of various Central ministries and State governments to ensure quick completion
of works and efficiency, possibly a long term need for a nation that is on
booster doses of revenue injection through borrowings to push the growth.
Even as the World Bank
says that the country would have 8.3 per cent growth and Finance Minister
Nirmala Sitharaman saying that this would remain the trend for the next decade,
the new plan is stated to check the expenses on different projects to its
budgeted levels or may be less escalation in the long run. But it will still be
not in a position to check the galloping inflation. Though food prices were in
check for about eight months, the latest reports suggest that food and
vegetable prices are shooting up in many areas.
The new mega plan would
try to end various entanglements in official quarters for better implementation
through coordination of 16 Central government departments, including railways,
roads and highways, petroleum and gas, power, telecom, shipping, aviation and
others. Bharatmala, Sagarmala, UDAN, inland waterways, and ports all are to be
connected and duplication avoided for cutting costs.
The new plan is a
good move to check the overall impact on prices in the long run. It may have
more benefits in the future. But food and other prices may continue to soar for
a number of factors that are not easy to address. The industry department data
say that certain food items’ contraction has brought down the food inflation to
4.69 per cent in September. During the same time manufactured products prices soared
to 11.41 per cent from 11.39 per cent in August.
Among food items
prices of potato, onion and fruits are stated to have contracted the most but
pulses rose 9.42 per cent and now in October, onion and fruit prices have
started soaring. Food prices are not decelerating across the board. If cereal
and vegetable prices are excluded from food category, the consumer price index
denotes that prices of other food items have remained sticky at high levels.
In the manufactured
category prices of basic metals rose to 26.71 per cent and textiles remain
elevated at 26.09 per cent. Interestingly enough activities in different
sectors have not yet picked up the pace needed to give the desired effect.
A major reason is the
rising global fuel prices and a domestic policy of high taxation on petroleum
products, a concern expressed by Reserve Bank of India. Overall inflation also
pushes up wages and other costs. Global fuel prices have started firming up now
with an increase in demand. India takes a double hit. As the second most
populous state reaches the international market, the prices shoot up. Food
grain doles are keeping the prices in check to a certain level. But as
activities increase so do domestic demand. This is what a coordination
committee has to look at. With crude prices hovering around $80 a barrel and
likely to firm up further inflation scenario may become grim.
Whether the Gati Shakti
plan using geo-mapping and real-time data in one centralised portal to ensure coordinated
efforts, would keep a check on rising prices would be interesting to observe.
As it is happening cost pressures could increase further. These include rising
wage and transportation costs on the industry. The Bloomberg commodity index
crossed 100 in the last week of September, first time since 2015, and continues
to stay at that level. Prices of coal and crude oil have risen and are expected
to rise further as energy consumption in the developed countries increase.
The RBI’s monetary
policy committee expects inflation to start increasing from October-December
quarter onwards. The WPI inflation is to rise, the MPC forecasts. Any fall in
inflation may have little to do with overall growth. It is beyond the scope of
any normal activities of the government. The latest Gati Shakti has a different
purpose and if global situation improves then only India would have a reprieve
from the mega inflation run.
Technically measured
by consumer price index (CPI), the inflation is at a low. It grew at 4.35 per cent,
seems something good, as overall it has come down by 195 basis points.
Inflation figure is a bit complicated and not answered by figures. The headline
numbers do not speak out the reality and the issue remains complicated.
The inflation also
impacts purchasing power. It means the consumers are yet not flocking to the
market. This means the sales of goods are not increasing. Many units are unable
to transfer the additional costs on fuel to the consumers. Even the truckers
face this problem. They cannot let their fleet remain idle. So even at lower
prices they agree to transport goods.
Another aspect is a
kind of stagnation in income levels and in some cases even rising income is not
seeing the end of poverty. There is concern about inequality-driven inflation.
This helps large companies gaining pricing power, notes a HSBC Securities and
Capital Markets India paper. It says that cost adjustments around the world are
leading to unpredictable inflationary pressures.
So there are
expectations from government announcements. While the Gati Shakti has raised
higher hopes of completing projects within the budgetary expenses, it also
needs practical approach to address the issue. The Gati Shakti is a larger
concept with integrated and coordinated growth plan. To give pace to it,
another master plan to check inflation is needed.
The administered
prices of petroleum products along with the higher cost on road travel also
have to be seen from the aspect of coordination. Coordinated pricing is key to
the success of the Prime Minister’s new master plan. It would take wings once
the monitoring group talks and listens to the coordinated moves needed long
back on infrastructure projects.
Prime Minister
Narendra Modi has concept and vision. He has to set up another committee for
coordinating the issues of fuel prices for the best gains from the Gati Shakti.
Inflation is complicated. It has to be tamed through how fuel, coal and other
energy related prices could be kept low. It could be through adjustment in
taxes, non-impounding of old vehicles, cheaper travel to make fuel affordable
at around Rs 50 to 60 a litre. At lower fuel prices, there would be more
activities, more revenue generation and the aim of the NDA government to have
an overall development could be achieved.---INFA
(Copyright, India News & Feature
Alliance)
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