Indo American News • Friday, July 16 , 2010
online edition: www.indoamerican-news.com
Friday, July 16 , 2010
www.indoamerican-news.com
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Business IndoAmerican News
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Will India’s Rising Inflation Lead to More Social Unrest?
Earlier this week, India’s opposition parties came together in a rare show of unity to take to the streets in cities across the country By Paranjoy Guha Thakurta (BBC) They protested against the government’s recent decision to raise fuel prices after it scrapped its subsidy of petrol prices in an effort to cut the budget deficit. Supporters of the right-wing Bharatiya Janata Party joined hands with their ideological rivals among the Communists to paralyse normal life in large parts of the country. Opposition leaders thundered that the government was more concerned more about “the health of its oil companies than of its ordinary people.” The government’s chief economic adviser Kaushik Basu said the revised prices of petroleum products would add less than 1% to the official wholesale price index. But the government’s critics argued that such a calculation did not take into account the “cascading effect” of an increase in transport expenses on account of higher diesel and petrol
costs. Even sections within the ruling Congress party were unhappy with the government’s decision although Prime Minister Manmohan Singh justified the move. “People are wise enough to understand that excessive populism should not be allowed to derail the progress our country is making,” Mr Singh said. “The subsidies on petroleum have reached a level which is not connected to sound financial management of our economy. “So, this decision has been taken to put some burden on the common people, but it is manageable.” High inflation India is not Zimbabwe. Nor has inflation touched triple-digits as it had in the past in countries such as Argentina, Brazil, Russia or Israel. However, by the standards of most countries still struggling to get out
Prices of all food items have all gone up considerably.
of recession, inflation in India has been rather high at around 10-11% in recent months. This has prompted the country’s central bank, Reserve Bank of India, to increase interest rates by 0.25%. Another interest rate increase is expected soon, which has far from enthused industry and trade.
Inflation, economists have argued for long, is akin to a tax on less welloff sections of society. When inflation occurs largely because of rising prices of food products (as it has in India of late), it becomes a double burden on the underprivileged since food accounts for more than half the expenditures of the poor.
INDO AMERICAN NEWS • FRIDAY, july 16 , 2010 • ONLINE EDITION: WWW.INDOAMERICAN-NEWS.COM
Over the last seven months, food inflation has ranged between 13% and 20%. Prices of pulses, dairy products, sugar, edible oils, fruits, vegetables and cereals have all gone up considerably. The government acknowledges that the bottom one-third of the country’s 1bn-plus population lives below a contentiously-defined “poverty line”. India is currently mulling the enactment of a new law conferring the right to food to all its citizens. Until the middle of 2008, inflation in India was driven largely by high prices of petroleum products. The country imports over threequarters of its total requirements of crude oil though it has surplus capacity to refine petroleum products (some of which is, paradoxically, exported). continued on page
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