They call congress the harbinger of
predatory INFLATION. To some extent this is correct, because out of the 67
years of independent India, Congress has to manage Indian finances for 55 years at center.
So, let us have a look at the inflationary rend in Indian economy since late 50's.
Image: Inflation Trend
But
same can not be said about Congress and the states. Since independence, the
states have not tolerated the Congress party as the center has. There are big states like TN and WB where
Congress is not in power for the last 40 years or so. There are other states
like UP and Bihar where Congress is not in power since late 80s. And then there
are states like Gujarat where congress is not in power since mid-90's.
So, to put all the blame at the door of the
center will be not fair when
is not a central game all together. Though RBI has kept the money minting right to itself, the production and demand are played in the sates, rather than center. Import and export has bearing on inflation too, which is controlled by the center, but we will see how in those fronts the UPA has no luck for the last 8/9 years. Here is a basic Demand-Supply curve, which determines the price elasticity.
Image:
Demand-Supply curve: Determines Price
Let’s examine this by considering the
components which contribute to the inflation figures.
Image: Inflation Basket
Now let’s see what has been the
contribution of food and fuel to the inflationary trend in India since 1998. Because as per the figure above, it is clear than Food and Fuel makes roughly 57% of the WholeSale Price Index (WPI) in India. This is not a constant feature, but the contribution of these two are at the fore front in the back-breaking inflationary trend in India for some years now.
The following image depicts the impact of these two items in the WholeSale basket on the inflation. As you can make out till 2004, fuel did have the largest impact on the inflation, whereas the trend
becomes more equal since 2005-06. That means food inflation had a sobering impact on the overall inflation during the NDA regime.
Image: Food and Fuel Contribution to Inflation
So, can we conclude that NDA managed the food
inflation quite well or there was a worldwide trend that saved the day for the
NDA? For this we have to see what was the story of the world in those NDA days!
The following image will help you find the worldwide food price index since 90s. Look at the
trend from 1998 to 2004. There is clear food price stability during the NDA regime throughout the world. So, this also has to be captured in the context of Indian inflation story too. Since, 2004, there is a substantial northward movement in the graph. So, this explains that NDA has no magic
bullet to curb the food inflation.
Image: Worldwide Food Price Trend
Now, look at the fuel pricing since 2000.
Till 2003 the international fuel price was stable. Since then it has increased
with fierce pace. As you know India
So, the impact of price inflation due to
fuel is quite substantial. NDA was lucky that it has quite a stable fuel import
bill to manage. UPA was clearly at the receiving end with no fault of its own. How can we say so?
Let's see the fuel pricing trend since 2000.
Image: Worldwide Fuel Price Trend
Let’s look at the world commodity price index.
As you can make out clearly that the NDA was lucky and the UPA had bad luck on this front too. Manufactured good depends on the commodity and what ever price inflation they had was due to this.
Image: Worldwide Commodity Price Trend
Now, coming back to decide whose
court the inflation ball should finally be thrown in; the state or the center,
let us examine through pure logic.
Where do the consumption happen and who do produce?
Some
harp on a point that the UPA hoarded grain in godown, which has jacked up the
price. That is a weak argument for the simple reason that the FCI procures only rice
and wheat, which does not make a big impact on food pricing. Food price has
inflated due to a healthy surge in the consumption pattern in rural and urban
India in the favor of meat based or protein rich food articles. There are
Clearly people are eating
more protein based food. This is good news, isn’t it?
Here is a data point to make some more sense:
There are some critics who harp on
the inflationary trend for rice and wheat. Yes, they are to some extent right
when they package it with the allegation that FCI is hoarding these two. It is
true that the rice and wheat pricing has been adjusted upward three times from
its stagnant 2004 level through MSP to:
- Incentivise production of rice and wheat; otherwise what the RICH Indians would eat, MONEY?
- Encourage farmers to stick to farming by coming close to the cost of production
- Put more money in the hands of the farmer and thereby in the rural economy
- Adjust the deformity of costing between the manufactured and the farm products
So, what Manmohan could have grown in his 7
Race course backyard that Modi, Jaya, Naveen, Nitish, Badal’s, Raman, and Mamu
of MP failed to grow? What was there performance of these states in curbing
food price at the state level? You can see for yourself:
Image: Statewise Inflationary Trend
Was Gujrat, WB, Odisha, MP or TN selling
Onion at Rs. 20.00 when restless in Delhi were buying at Rs. 80.00? Search for
that answer and when you get it, do tell me?
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