Success in Inflation control by NDA

--Jayesh Gupta

If we compare the inflation rates (year on year or yoy) for the month of April and September, we can firmly establish the efficacy of the new government policies. Before we go in to that analysis, it is necessary that we simplify the economic language. Inflation rates are measured using price indices, where price is a sum total of cost accrued due to factors of production, taxes and margin for the entrepreneur. Further Consumer Price Index (CPI) is more efficient means to analyze inflation affecting common man given that CPI is a weighted average of products and services as purchased by end consumer or retailers. In India, CPI basket is broadly classified in to five subsets, namely: Food & Beverages (49.71%), Fuel & Light (9.49), Clothing, bedding & footwear (4.73%), Housing (9.77%) and Miscellaneous (includes services, 26.31%). For a middle class family the most significant subsets are Food and Fuel. Since fuel inflation is affected largely by extraneous factors, we will limit our discussion to Food inflation and government policies concerning the same.

The period of year ranging from July to December typically constitute a crucial phase given the lacunae in availability of perishable food items (vegetables, fruits etc), cereals and pulses. This situation is further exacerbated with rise in demand, given coincidence of important festivals such as Id-Ul-Fitr, Durga Pooja, Onam, Dusshera, Muhrram, Deepavali and Christmas. Any delay in Kharif produce can further exacerbate the situation. In this light we try to analyze the government policies ameliorating such a situation, we further intend to compare the inflation index during UPA II and present NDA government.

Inflation rate for food and beverages, for the month of April’14 (yoy) stood at an astounding 9.66%. And to add to its detriment, the inflation rate in perishable food items was extreme. Fruits witnessed highest inflation rate of 21.73%, followed by Vegetable with inflation rate 17.5% and the third highest inflated segment was Milk and Milk products with inflation rate of 11.42%. However the inflation rate for food and beverages fell to 7.56% during month of September under NDA regime. And one thing of particular importance is inflation rate in vegetables, it fell to 8.59%, this is indeed half of what we experienced during April’14. Even the preceding UPA II was not capable to control food inflation during Sept’13 and it was as high as 11.44%. Further Inflation rate in vegetables during Sept’13 (yoy) stood at 34.93%. The present inflation control effort by present NDA government is indeed commendable and a slap on the face of preceding UPA II. But it is of essence for us to analyze how the new government was able to control food inflation and what lacuna it still faces?

Regulation and deregulation of powers given to APMC (Agriculture produce marketing committee) holds the key. The issue of cartelization, hoarding and artificial storage had always paralyzed the APMC yards. And the worst affected are the perishables, given its limited shelf life. This particular issue was tackled by the “Six month action plan” initiated by Mr. Arun Jaitely as a part of coordinated action between centre and states during July’14. In its fourteen point action plan, three are of particular importance. One significant point approved market intervention by states on a real time basis. If properly executed it holds potential to prevent “stock-out” during festive months. It can further control prices using “Price

Monitoring Cell” and “Revolving state fund”. Second significant point emphasized removal of vegetables and other perishables from the ambit of APMC act and immediate notification by state governments in this regard. It also empowered the states to exempt perishables from APMC yard tax/local fee during the interim period. The last but essential feature was to make offences under essential commodities act non-bailable. Such bold steps seemed plausible and indeed are fructuous today. However inflation in few food items including milk products and fruits showed no significant change. It remained similar to that of April’14.

The inflation control efforts by NDA government tend to invigorate life of many, however it should also look in to inflation control for other food commodities. And also should not hesitate to draw examples from UPA II, as it is evident that UPA II managed to keep inflation in fruits and milk products to 9.33% and 8% during Sept’13.