Economic Highlights
New Delhi, 16 May 2022
High Trucker Costs
RETAIL INFLATION HIGHEST
By Shivaji Sarkar
Galloping inflation needs to be immediately checked. It hurts the
government more than the common man, creating a cycle that hits everyone and
adding further to the inflation. Retail inflation touches 7.79 per cent, the
highest since September 2014 and the wholesale index remains over 14 per cent.
It has made food inflation go beyond tolerable limit and so too the travel and
transportation expenses.
The policies need scrutiny as the subsidy regime is reversed by high
taxes on fuel, road sector and commodities through various instruments such as GST,
excise duties, VAT, road, agriculture and other cesses, toll and consequent
rise in prices. The policy makers blame it on international factors like the
Ukraine war but are unable to explain how it causes severe rise in vegetable
prices, home grown wheat flour and myriad such products. Pulses rise by17 per cent.
The government itself is in a quandary on the prices and needs to
discuss issues that can bring down its bill on expenditure and cost of
investments. That is possible through moderation of prices. On an average it
has gone beyond the Reserve Bank of India tolerance limit reset at 6 per cent. Rapid, sustained
inflation harms families by wiping out their wage gains and eroding savings. It
also rocks consumer confidence, and businesses.
The rupee falling against the dollar is yet another cause for concern.
It virtually imports inflation, and this is difficult to contain unless
domestic steps raise the purchasing power of the rupee. Instead that is being eroded, as the rupee
touches Rs 77.34 to a dollar. It makes petrol, coal and essential imports
expensive.
Freight rates on grand trunk routes have
already shot up by an average 3-4 per cent month-on-month, according to the Indian
Foundation of Transport Research & Training. The recurrent increase in the
fuel prices singe into the margins of small and large transporters and will
force them to pass on the hike to their customers. This in turn is set to make
the prices of daily consumables and other goods dearer, impact consumption and
slow the economic growth, the study says.
An Indonesian study finds that the increasing fuel prices have a
devastating impact on the transportation sector. If we do not check this, the rising
oil prices would cause a slowdown. Two recessions that occurred in the 1970s
started the myth that oil prices can cause recessions. Of course, a small
correction has been made to the monetary policy by a small raise in repo rates.
As per RBI’s own calculations, almost every 5
per cent depreciation in the rupee adds about 10-15 bps to the inflation. The
RBI move to check it also has a cost it.
Transportation and input
costs have hit even the largest Unilever. It is seen in reducing the size and
quantity in each of the small packs. A 10-rupee dish cleaner now has 135 grams
against 155 grams three months ago or so. A Haldiram aloo bhujia now has
42 grams against 55 grams. Dabur has reduced grammage. Britannia has passed on
65 per cent of incremental input costs all through 2021-22. Every category has
had inflationary headwinds, says Sanjay Singhal, of ITC’s dairy and beverages
unit. The manufacturers are hit by cycle of rises from petroleum, toll, transport
to edible oil and other input costs. They transfer it to the consumers, who
respond by a further stickier consumption.
Despite a $400 million
export, the RBI is concerned as global price rises may lower demands. Imports
have surged. The balance of trade is unfavourable and reducing imports is
difficult. The rising rupee against the dollar or fear of contraction of rupee
is worrisome as the forex kitty has shrunk to $597 billion from $642 billion. In the week ending
April 29, foreign currency assets fell by $1.110 billion to $532.82 billion.
Meanwhile, gold reserves dipped by $1.164 billion to $41.60 billion. The SDR
reserves stood at $18.3 billion lower by $362 million. The country’s reserve
position in International Monetary Fund is at $5.001 billion lower by $59
million in the week ending April 29.
A 10 per cent rise in fuel prices raises
12.78 per cent of production costs in the road transport sector, says study of Dhani
Setyawan of Indonesian Ministry of Finance. In addition, there is also indirect
impact to the sector by 5.13 per cent. The indirect impact is induced by the
changes of other sector product prices.
The Fitch agency says that
the hiking of natural gas prices for ONGC and Oil India to $6.1 per million
British thermal unit from $2.1 may be good news as their profitability would
increase. Reliance would have higher profitability as the rate of KG-D6 has
gone up to $ 9.9 per mmBtu from $6.1. Once again it will have deleterious
impact on transport costs.
A study on impact of toll
system by Kedar Nath Pande in the International Advanced Research Journal, says,
according to the National
Motorists Association it is an inefficient approach, worse it fosters
corruption, political patronage and discourages needed improvements on the rest
of the non-toll highway system. Toll is the second largest expense of
transporters at Rs 4 to 5 lakh a year per truck. The average usage of truck has
remained the same whereas costs have increased, and transporter margins are at
an all-time low, Pande says much of it due to the tolls. But NH Fee rules 2008
of reducing tax after 60 per cent cost realisation is never implemented.
The DNA story observes that toll
collection is a huge profit-making mechanism, as per the police. It cites the
instance of Pune-Ahmednagar toll gate at Perne Phata. The government’s
investment on the stretch was about Rs 10 crore. The road was started with an
expected profit of Rs 24 crore in 10 years. It collected Rs 394 crore as toll and
has paid Rs 1.55 crore to the government. Similar irregularities detected in Tamil
Nadu. The government is collecting on an average Rs 3.6 lakh crore through various
petrol cesses and as per National Highways Authority of India, it directly
collects Rs 38000 crore at toll gates a year.
Each of these also impact
government expenses. These go up every year following a myth that inflation
helps government earn more. In reality, there is more erosion to revenue,
increased hardships at every level and the resultant slowdown adds to the
problems. Lower the inflation, higher the demand and happiness in the country.
Reviewing taxes and tolls will help the government earn more.----INFA
(Copyright,
India News & Feature Alliance)
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