In Thane, not too far from India’s financial capital Mumbai, a woman received more than 4 kg of the kitchen staple as a gift on her birthday.
In another instance, Uttarakhand residents living near the India-Nepal border had to go the extra mile to the neighbouring country just to purchase tomatoes. Known for jugaads, or hacks, citizens of the world’s most populous country are also opting for purees instead of buying the fresh vegetables.
The price pains are not restricted to the tomatoes. Costs of food items ranging from chilly to staples including pulses and rice, consumed by crores of people, are singing Indians, who in any case have been shelling out more than Rs 100 per litre of petrol in many parts of the country. Higher prices for goods and services across various sectors have led to consumers shelling out more than they did in recent years, leaving less in their wallets.
While India can feast on the cake and pat its back for climbing to the fifth rank in the world’s largest economy list, the struggle for the commoners to acquire the bread is getting tougher.
Prime Minister Narendra Modi’s recent US and France trips involve the Asian nation clinching and awarding mega deals, ranging from beefing up the country’s military tools to getting companies to make chips here. The deals will have a multiplier impact and propel India’s businesses and economy in several ways over the coming years. However for the immediate times, survival battles aren’t easy for many Indians.Price of a thali, burgers minus the pulp
Indians had to buy tomatoes, which earlier retailed at Rs 20 per kg, for as high as Rs 250 per kg. Vegetables including green peas, French beans, ginger, and coriander have also doubled. Chilly proved to be too spicy with prices hitting even Rs 400 per kg.
McDonald’s has stopped adding tomatoes in their burgers and wraps. Some restaurants too said they are taking a hit on profit due to skyrocketing prices, while ecommerce platforms said sales of tomato replacements such as puree have more than doubled.CRISIL in a note said the cost of veg and non-veg thali (meal) alike, on the decline since October 2022, has nosed up on a sequential basis in May and further in June 2023. Elevated prices of tomato on month in June has led to an increase in cost of both thalis, while tur and gram prices increased approximately 3% on month in June.
The average price of a non-veg thali (with chicken) was estimated to be Rs 60 in India in June, as against Rs 50.6 in February, whereas a veg meal stood at Rs 26.3 versus Rs 24.7 in February last year, according to CRISIL.
This is despite a steep decline in cooking oil.
The pain of a common man
“We handle more than a hundred customers a day and most from the economically weaker section are very worried. Several customers trim their shopping carts, including food items, when we are handing them the final bill,” said Prasanta Paul, a grocery store owner.
Paul said their business is also taking a hit as reduced purchases obviously mean a hit to their sales while some perishable items are also thrown to the bin.
“The cash is concentrated in few hands and in any case the better-offs have the luxuries of online purchases or visiting prominent retail chains to buy items; thus making the fight tougher for kirana stores. This is also impacting thousands of distributors who are associated with us and smaller stores. The impact of the constant price rise has multiple levels and is hitting our lower-income customers significantly,” he added.
Sanjiv Bose, an Uber cab owner and driver in Kolkata, said the price pain is particularly profound for common people such as them as they have to carry the load of high fuel costs and increased EMI rates, while they are often bickering with the cab aggregators about sharing of the ride prices.
“Increased prices of food items have made our existing struggles harder. To earn Rs 700 to Rs 800, we are slogging for at least 14 hours. But we are not saving a buck at the end of the day,” he said.
Senior citizens and particularly ones without pension are also under severe stress, given the medical expenses are also high for them.
“Among the vicissitudes of a retired life a mammoth , hefty and unmaneuverable price hike poses a disconcerting dilemma . Indispensable life-saving drugs and necessaries of day to day living are scarce, nay out of our reach,” said Damodar Ranjan Dey, a retired professor. “Cost of medicines, diagnostic expenses and outflow for many other medical necessities bewilder and stupefy us. We think we are now confronted with no price hike but a price explosion, throwing its lethal splinters all around.”
Income and price rise
PwC’s data (based on ITR filing) comparing growth of total income of Indians for up to Rs 10 lakh vis-à-vis inflation rate shows that income growth in this segment lagged the pace of price rise in fiscal years 2018, 2019 and 2021.
Income growth of 6.7% and 8% in fiscal 2020 and 2021 outpaced inflation of 4.8% and 5.5%. However, the gap has sharply diminished if we look at fiscal 2017 when income growth of 29.2% was ahead of 4.5% inflation rate.
“However, the government has been pump-priming the economy with very high capex growth and the utilisation of the capex budget is also very high. These help in creating multiplier effects as most of these are being spent on high employment generation projects like construction of roads etc. leading to demand generation,” said Ranen Banerjee, Partner, Economic Advisory Services, PwC India.
Data debacle defeats policy efficiency
India’s retail inflation hit a three-month high of 4.81% in June, driven by food prices surging 4.49% in the month compared with a 2.96% rise in May.
However, and as economists suggested, the analysis has to go beyond the data prints.
India is the fastest growing major economy in the world, data shows. Also, tax collections have hit record highs in India, while indirect tax collection (which also reflects strong consumption and improving business scenario) per month of Rs 1.5 trillion is a new normal.
However, India’s data reporting is seen by many to be flawed and oppositions say it can be tampered with. India does rely on outdated surveys and its current CPI basket shows that it accounts for several outdated items such as VCR/VCD/DVD player, radio, tape recorder, audio/video cassettes, etc.
This makes policy choices difficult, hampering what the citizens truly need. In fact, Reserve Bank of India Deputy Governor Michael Debabrata Patra also said making monetary policy is often like flying blind due to the lagged information on growth and inflation variables.
What can the government deliver
Talking about the needs of the people, Banerjee said, as far as measures to help with the pain of inflation is concerned, they have to be targeted interventions given that the major effect is on lower income households where the essential consumption comprises majority of the household expense.
State as well as the central government have been undertaking measures towards either provision of subsidised food items like grains. There also have to be swift and nimble measures on addressing any supply side challenges of the essential commodities that causes inflationary pressures for common essential consumption items, Banerjee said.
“The government has been able to get efficiencies in the subsidy expenditure and further targeting and optimisation of subsidies can help in releasing fiscal resources for such nimble price interventions. A big lever available with the government to cool inflation is the pump prices of fuel, as the price of Indian crude basket has come down significantly,” he added.
Save for later, if there’s anything left
India has traditionally been a savings rich economy, but the rising inflation has impacted both consumption and savings, with savings declining to a three decade low, said Utkarsh Sinha, Managing Director of boutique investment bank Bexley Advisors.
“However, some records indicate that while the preference for saving through financial instruments has dropped, net savings in gold and silver has risen,” he added.
Household total savings declined to 15.7% of GDP in the first half of the ongoing fiscal, the lowest in three decades, according to MOFSL.
This perhaps brings back the debate on India’s K-shaped recovery and the growing income divergence. Luxury item sales, be it a TV worth Rs 75 lakhs or Mercedes and Porsche, have picked up in India, while 813.5 million poor are still needed to be fed for free in the post-pandemic era in India.
Dipti Deshpande, Principal Economist at CRISIL, said rather than savings, one needs to look at the scenario from the perspective of purchasing power that has been hit with intensifying inflation pressure.
Also, inflation needs to be categorised into essential commodities and discretionary. The essentials component of inflation has seen a faster pickup, she said.
“What it does is, if I end up spending a lot more on essentials, then what is left for me to spend on discretion comes down. High inflation in essentials would have eroded my ability to purchase as much of the discretionary goods, especially at the lower income bracket. At the lower income level, the proportion that one spends on essentials is far higher than one needs to spend on some of these discretionary items,” Deshpande said.
More pains ahead?
Crisil has raised concerns over ‘inflation’ in pulses due to changing weather patterns. Economists have suggested a steeper-than-expected surge in the prices of vegetables, especially tomatoes, could push India’s retail inflation towards 5.5% in the July-September quarter.
While the monsoon progress has been good, the uneven distribution of rainfall with significant deficits in eastern India and Maharashtra is a worry. These may impact paddy production as well as pulses, PwC’s Banerjee said.
There are also forecasts of dry spells in the second half of July owing to El Nino, which may also have a negative impact on the growth of paddy and other produce. “So, we cannot be sure of the peaking of the food prices as it will be dependent on monsoon performance. Any escalation of geo-political confrontation and consequent world food price rise could also add to food inflation,” he said.
