Remember the ‘Onion elections’? In 1998, soon after winning the Lok Sabha elections, the ruling party found itself battling the rise in onion prices during elections in the states. The ubiquitous onion was selling at more than Rs 50 a kilo. Then Delhi Chief Minister Sahib Singh Verma had famously remarked that “the poor, in any case, don’t eat onions”. Such was the backlash that he was removed as CM and replaced by Sushma Swaraj. However, nothing worked, and Delhi was lost to Sheila Dikshit for 15 years. In 1980, Indira Gandhi had used the onion crisis, when prices reached Rs 5 a kilo, to crush an embattled Charan Singh-led government.
In 1998, too, the dominant theme was the Babri Masjid. The BJP had come to power promising a new temple at the site in Ayodhya. However, religious fervour could not divert people’s attention from the rise in onion price. Neither could the nationalist slogans around the Pokhran blasts. Prime Minister Atal Bihar Vajpayee campaigned in Rajasthan, where the nuclear tests had been held, and had underlined the new confidence of an emerging superpower, but the rumble against rising prices refused to die down, and the voter exercised her choice rather clearly.
With petrol touching Rs 120 in parts of the country and LPG cylinders going up to Rs 1,000, rising prices in 2022 didn’t seem to matter at all. However, the government must have smelt something, for it decided, in a major policy U-turn, to reduce excise duties by about Rs 8 per litre of petrol and Rs 6 for diesel. A number of people would argue that it was too little, too late, and that the inflation numbers remain high. The problem is that fuel price inflation is just one of the many causes of the supply-side disruption we have seen.
What is more perplexing, however, is that all this rise in inflation has come about without a reduction in record unemployment levels. The Philips Curve famously declares that inflation and unemployment are inversely proportional. Why is that not showing in a country where the unemployment figures have reached an unprecedented high and wholesale inflation has been in the double digits for at least 13 months now. Retail inflation at nearly 8% and urban unemployment at more than 9% is indeed a serious double strike towards recession.
The reactions to this incessant rise in prices are just as disconcerting as Sahib Singh Verma’s in 1998. While there is a deathly silence from all policy quarters, the Union Finance Minister made a characteristically flamboyant statement when she said that retail inflation at 6.9% hadn’t breached the target (4 plus 2%) so badly, after all. She did then say that the government is trying to relieve the burden on the poor, a statement that contradicted her ministry’s recent fanciful claim that inflation had hurt the rich more than the poor. The ministry, which then denied this claim, seemed to have redefined inflation, which essentially is a tax against the poor.
This is an important point to highlight. Retail inflation in India has been rising primarily because of the hike in the prices of edible oils and vegetables. It also is pushed upwards by the rise in fuel prices. These items are consumed by the poor and constitute a large portion of the consumption basket of those at the bottom of the income pyramid. Any claim that price rise hurts the rich more than the poor is not only insensitive, it also flies against the basic logic and definition of what inflation means.
The reasons for the rise in prices are clear: there are huge supply-side issues that are causing these problems – a raging war in Ukraine and uncertainty due to lockdowns in China.
What is also exacerbating the situation is the income side of the equation. A recent report of the Institute of Competitiveness shows that there are less than 10% of workers in India who earn $10 or more a day. Two-thirds of our workers earn less than $3 a day and live on the margins of poverty. Any increase in expenditure because of price rise pushes these households under the poverty line and causes increased hunger, dropouts from school, and reduces their access to healthcare. What the country needs are urgent steps to reduce fuel prices, increase employment through public expenditure, and a boost to investment through domestic and the foreign private sector.
Therefore, we get back to the original question. Why is there no consternation on the part of the consumer, who is now paying so much more for everything? The RBI raised interest rates only by 40 basis points, a feeble hike that came after four years. The rupee continues to fall and is at a historic low now, pushing up import prices and therefore putting upward pressure on inflation, particularly with respect to fuel prices. The only significant measures we have seen taken are of selling dollars, thus depleting foreign exchange reserves, and the wheat export ban. The former hasn’t stopped the slide of the rupee and the latter was partially withdrawn after an international outcry against it.
The only explanation could be that the poor have given up. Demonetisation and the slump in the Small and Medium Enterprises sector has cost them dearly. With no prospect of salaried employment, millions of them have withdrawn from the workforce and are not even looking for jobs. The small but articulate middle class in India, which is a large proportion of that 10% of the population that earns more than Rs 26,000 a month, is not about to desert a political dispensation that espouses majoritarianism, while also convincing them that it stands against corruption and subsidies and doles. The top 1%, of course, have never complained and, by all accounts, seems to have done well during and post-Covid. So long as such glaring inequalities are ignored, or even nurtured, the inflation tale will have few takers.
(The writer is Professor of Economics at MCRHRDI of the Govt of Telangana and teaches Public Policy at ISB and TISS)