Economic
Highlights
New Delhi, 20 December 2021
Peak Inflation
MORE TAXES TO BE
LEVIED?
By Shivaji Sarkar
The highest wholesale price inflation in
decades at 14.23 per cent may result in high deficit leading to levying of more
taxes. Government expenses are certain to rise even if it wants to keep the
deficit low at least on paper around 6 per cent. It is a difficult task but
necessary as per international norms. The budget would be interesting to watch
as the consultations with agriculture, industry, kisans and financial
institutions begin.
An interesting aspect is that all these
groups want a check on inflation but all the same struggle for having better
prices that contribute to an inflationary trend. The government has also
started the process of domestic production of semi-conductors, and batteries
for the car industry. This is the contrived solution to counter international
rise in prices. But it is not sure that steps taken to acquire lithium mines or
increase semi-conductor manufacturing or edible oil production would be a solution.
The price rise is heightened by muted factory
output at 3.2 per cent. This has led the Asian Development Bank (ADB) to scale
down India’s growth estimate to 9.7 per cent, almost close to the rates of the
RBI at 9.5 per cent.
It is the highest since 2005 and surpasses
the recent October figures of 12.54 per cent. This is spiked by high petroleum
products, gas prices at 39.81 per cent, mostly due to high component of excise
and other taxes. The manufacturing prices are also high at 11.92 per cent
causing a severe crisis like situation in the textile sector. Domestic edible
oils have spurred at a very fast rate at over 50 per cent in the last one year.
Even commonly used mustard oil shot up to Rs 214 a litre from approximately Rs
85 to 90 a litre.
The Reserve Bank of India is concerned of the
impact of high toll, fee, excise and other charges for the rise in commodity
prices. The rising prices are making most commodities unaffordable as there has
also been loss of jobs or cut in wages. The food grain prices rise by 4.88 per cent,
not low but moderated by free food grain doles through public distribution system.
Else the food grain prices too could have soared to a high.
One interesting aspect is that high prices
show GDP look brighter. Inflation-engineered high expenses show the growth in
“positive” light though in reality it depresses purchasing power and adds to
many other woes including contraction of wages a normal for many industries.
Inflation naturally adds to the problem. It becomes difficult to afford high
prices at low wages.
Food inflation especially in staples like
pulses and edible oil is the last thing any political party wants in the run up
to a crucial election. With just weeks left for the elections in five States,
including the all-important Uttar Pradesh, it is no wonder the Central
government has started taking measures to control prices through various
measures. The uncertainty of kharif product due to a not so well distributed
monsoon has made the government jittery about uncontrolled inflation in the
days to come. Sustaining the free dole for long is not practically possible but
withdrawal also has political implications.
The high fuel prices are being tried to be
countered with more battery-powered cars and being self-sufficient in producing
lithium batteries. It aims at saving about Rs 2.5 lakh crore in import of
crude! But the new effort is capital intensive, expensive and has high
prospecting cost. It plans to buy 12 lithium and cobalt mines abroad. The
National Aluminium Co Ltd will hold a 40 per cent stake in the joint venture
called Khanij Bidesh India Ltd, with Hindustan Copper Ltd and Mineral
Exploration Corp Ltd controlling 30 per cent each. Apparently, a wise move but
lithium is not widely available. Its mining and processing costs are very high.
The Khanij Videsh is two-year-old and so far it could not achieve the kind of
success it was expected.
Chinese companies control most such mines in
Australia, Chile and Argentina. Australian Prime Minister Scot Morrison had
discussed about Indian participation in critical metallic sectors. The progress
is slow. Apart lithium production cost is high and with rising shipping costs
overall cost becomes oppressive. It would not be easy to produce lithium and
lithium-batteries at affordable cost or save on foreign exchange. This apart
lithium reserves are not high and the prospective mines may not necessarily
produce as much lithium as the world demands. A caution is needed before
rushing for such a venture.
Though the new battery industry is trying
hard for a fillip, it seems that battery powered cars may not be an economic
solution. Overall so far despite all its complexities petroleum remains the
versatile fuel and for long the world may not get rid of it howsoever it may
like.
Most efforts often are crisis-led solutions
and ignore the problems as the implementers are competing for kudos and high
profits. India should better move slowly on battery production and electric
cars. So far 20 companies have shown interest in producing lithium batteries.
Lessons must be drawn from semi-conductor
crisis. There is also the problem in getting the chip essential for
manufacturing semi conductor. It has hit the passenger vehicle industry hard.
Automobile production has reduced by 19 per cent to 12.88 lakh units from 18.88
lakh units. Scooter, motorbikes, three-wheeler productions have all been
affected because of the chip scarcity. Federation of Automobile Dealers
Association President V Gulati says that automobile sales remain in the
negative zone.
The government’s Rs 76000 crore manufacturing
programme may give it a boost but again the basic issue of how to have the chip
would remain. It seems that globally chips itself are in shortage.
Similarly there is 20-30 per cent
year-on-year rise in prices of edible oil. A public distribution department
note says despite cut in import duty, a sudden spurt in prices edible
oils/oilseeds has been observed which may be due to alleged hoarding of it by
the stock holders. Thus, all edible oils have seen significant increase across
the country. The average retail prices Rs 132 to Rs 177 a litre.
So there can be programmes but solving the
crisis in critical areas may not be easy. The impending shortages and cartelisation
may result in overall price hikes. If the fuel crisis is not solved it is
likely that inflation in the Indian situation would continue to be a bane.
---INFA
(Copyright, India
News & Feature Alliance)
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