If inflation……!!

Inflation is all set to become the single most significant number for Indian economy in coming three months. The consumer spending, interest rate, overall economic growth and trend of investment will anchor on the inflation data of weeks to come. With the ensuing festive season, the shopping spree of Indian consumers will be guided by the level of retail prices and companies smartness to woo them despite pressure on margins.  While RBI will keep a hawk eye on inflation and take the future course about interest rates for the busy season of bank credit. Consumer spending will be an indicator of demand while interest rates will be a pointer for the status of industrial investments during the second half of the current fiscal.

India’s shopping season is all set to begin as winter festivals are setting in. Marketers are keeping fingers crossed as inflation has already spoiled the shopping party. For the first time customers are not showered with the offers which they were habitual of during this season. This is probably the first festive season when almost all of the automobile, home-appliance or electronics companies have increased the prices to factor in the increased costs of production, energy and borrowings. Food basket of consumers is already costly with the ever rising prices of wheat flour biscuits, sugar and oil.

Indians may not spend much during this festival season owing to the high inflation in the country, according to the 'Mood of the Nation Survey' conducted by global research firm IPSOS. A newspaper reports state that more than a third (78%) Indians claimed that their planned expenditure during this festival season was less than Rs 10,000. Among the respondents, about 43% individuals said that their spend during this Diwali was less than Rs 5,000. These people were mostly from middle and lower middle income families. The IPSOS survey was conducted between September 24-27, 2012 among the men and women in Delhi, Mumbai, Kolkata, Chennai, Bangalore and Lucknow.

Meek festival demand is significantly risky for the economy. Companies won’t be motivated enough to start fresh investment for the enhancement of their capacities in a timid demand scenario.  Hence if inflation is not checked, less shopping by consumers will add woes to the economic downturn.

Indian industry is crying for low interest rate on bank borrowings.  Reduction in interest rates is directly related to reduction in the level of inflation. India's annual consumer price inflation (CPI) fell in September to 9.73% from 10.03% in August, driven by a marginal fall in fuel and food prices. But it is still high on Reserve Bank of India’s parameters to reduce interest rates. In the last policy meeting RBI remained hawkish on the stance as the WPI refused to budge below 7%, the RBI’s comfort zone. Indian interest rates are the highest among the major economies .With the pass-through of diesel price likely to take effect soon, CPI inflation would head back to double digits in the next month. Inflation data will shape up the RBI's policy review, scheduled on October 30. RBI’s stance towards interest rates will set the tone for fresh investment by private companies in the economy.

Global oil prices will be the key detriment for the inflation in coming months. Global commodity prices will also be cardinal for the behavior of inflation in Indian market. Although an unprecedented fall in the growth of China is a bad news for global economy but it will still help reduce the crude and commodity prices.  A renewed strength of Indian Rupee is likely to help in keeping imports cheaper and inflation under control.

The stubbornly high Inflation is one of the major factors behind the India’s latest economic hardships. It is now going to be crucial policy guide for the government’s renewed efforts to rehabilitate economy. Pick up in the demand and cheap credit is must to bring back the feel good factor among investors and industry.  This is the most opportune time for government to take inflation control as supreme ‘reform agenda’ for the good of the economy in general and aam adami in particular.

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Inflation : An urban cry

A stubborn high Inflation has become a perpetual phenomenon of India’s daily life. Prices of essential commodities have been rolling high since last four years. Partially failed monsoon is just the latest trigger to it , although prices have been high for last few years despite robust crops repeatedly. Government efforts don’t seem to be taming it in near future and supply side constraints are making it harder to contain its persistence.

Inflation is a complex pro-poverty portent. A sustained rise in the prices of commodities leads to a fall in the purchasing power which in turn increases poverty. It is severely affecting the already grave situation of destitute living in rural as well as in urban areas.

Indian poverty discourses are bit over focused towards rural poverty while urban poverty is catching up fast and it has become a more intricate challenge to fathom with. The intensity of poverty is more severe in urban milieu due to high-cost of living up there. Some 81 million people live in urban areas on incomes that are below the poverty line. At the national level, rural poverty remains higher than urban poverty, but the gap is closing. Urban poverty is over 25 percent and it is projected to reach 50 percent by the end of 2030.

Indian cities have become magnet for internal migration thanks to high economic growth and job opportunities. Rising education is making rural youth inspire for greener pastures in urban markets as rural job market is confined to unskilled labor.  Heavy influx of population in urban areas is a major cause behind the changing levels of urban poverty.

High inflation seems to have a more severe impact on urban poverty levels due to majority of factors exclusive to urban living. Lesser prices of basic food stuff and subsidies make life somewhat easier for rural populace comparatively. Urban living has a host of other factors directly adding to inflation woos. Rented housing and public transport are basic features of city life. House rents are skyrocketing in urban areas while fuel price rises have made commuting highly expensive. Urban masses have to bear the direct brunt services inflation because of their consumption profiles.  

Inflation is increasing misery of urban poor, already  lack access to basic services like clean water, sanitation and health care facilities. Some 54 percent among urban slum dwellers don’t even have toilets and public facilities are unusable due to lack of maintenance. All this result into health hazard which requires them to avail medical-aid and rising medical expenses worsens the situation deeper.

Standards of living are changing rapidly in India with stark variance in income levels. Inflation has increasingly become an urban crisis as city populace has no direct protection from the market vagaries and absence of social security. Urban living has also sans direct government intervention like MNERGS to fight with poverty in cities. India will witness an explosion of urban poverty few years from now If Inflation is not contained.