High prices magnify woes in a distressed economy

The worst financial hardship in two decades calls for urgent, well-thought-out strategies for revival

When Dipa Sinha, an Assistant Professor at the Ambedkar University in Delhi, visited young children in the city and asked them what they missed about school, they immediately answered, “the food.”

“When anganwadis and schools were running, children were assured of one good meal, which they did not get at home,” says Dipa, who is also a member of Right to Food Campaign, India.

During the pandemic, that meal took the form of dry ration kits, supplied once every 15 days. “But we found that the supply was irregular and quantity of food given was low.”

Down south in Bengaluru, the LPG cylinder at Kaveramma’s house barely lasts for a month and a half. This 41-year-old woman, who works as a waste worker, is currently the only earning member in her household of six people.

Also Read | No end in sight to increasing prices of edible oil

While Kaveramma is eligible for ration under the Public Distribution System and gets adequate quantities of rice, ragi and wheat, she still has to buy vegetables, dal and oil — whose prices have been soaring. Now, with the cost of subsidised LPG matching that of non-subsidised cylinders (Rs 862 as of August 2021), she worries about not even being able to light the stove in her house.

“By increasing prices and not even giving subsidies during the pandemic, the governments are telling us that they don’t care that we eat, they don’t care even if we die,” Kaveramma says.

Similar tales of hardship abound in other houses here. People from low-income communities are particularly feeling the strain of persistent rise in prices of pulses, edible oils and fuel, coming as it does at a time of reduced incomes, increased debt and rising unemployment.

After a dip in July, the data from the Centre for Monitoring Indian Economy (CMIE) shows that the unemployment rate shot up from 7 per cent to 8.3 per cent in August, with some 19 lakh jobs lost.

Last year, a study by Azim Premji Foundation showed that the decline in food intake among vulnerable sections of the population had persisted even as late as October 2020, some five months after the lockdown. Some 40 per cent of families reported only a partial recovery in food consumption, while 20 per cent said there was no recovery at all.

A Hunger Watch survey conducted by the Right to Food Campaign in 11 states threw up similar findings. In September 2020, at least one in 20 households surveyed said they went to bed without food. More than 60 per cent of people reported a reduced intake of cereals, vegetables and pulses; 45 per cent of people reported an increased need to borrow money to buy food.

“Now, the situation is even worse because there were localised lockdowns and curfews in many parts of the country, and we did not have the kind of relief which was there last time. A lot of the NGO and civil society relief work was not there this time [during the second wave]. And the jobs have not come back,” says Dipa.

“There is a lot of continuing hardship from last year. In general, people are very stressed with their finances. That we do know, even if there are no recent studies. On top of that, if you have food price inflation along with high fuel prices, it definitely is going to add to the financial hardship in the current time,” says Amit Basole, who heads the Centre for Sustainable Employment at Azim Premji University and who is one of the authors of the APU study.

Price rise

Since January 2019, edible oil prices have risen by more than 66 per cent on an average in Bengaluru. Sunflower oil, which is commonly used in the South, has seen prices rise from Rs 97.13 per kg to Rs 173.91 per kg (nearly 79 per cent hike in prices); mustard oil has risen from Rs 109 per kg to Rs 179 per kg (64.52 per cent rise in prices).

Pulses like dal have risen by over 40 per cent since January 2019. Tur/Arhar dal prices rose from Rs 72 to Rs 106 per kg; urad dal prices rose by nearly 50 per cent, from Rs 71 to Rs 106 per kg.

Even the price of tea has increased from Rs 210 to nearly Rs 280 per kg.

“The prices of oil have increased relentlessly over the past two years,” says Raj, the proprietor of a North Indian sweet and savoury shop in Kasturi Nagar.

“All of these prices have increased,” he says, gesturing behind him to the ceiling-high shelves packed with snacks and savouries.

Raj says that a month ago, he hiked the price of the samosa from Rs 15 to Rs 20. Four years ago, when he opened the shop, he sold the fried snack for Rs 12.

Another cut that has been felt deeply by households is the price of LPG. In August, the price of the subsidised gas cylinder finally caught up with the unsubsidised LPG, after a keen upward sprint that started sometime last year.

In 2020 - 21, the subsidy provided for domestic LPG (Rs 11,896 cr) was less than half of what was provided in the previous year. This has implications for flagship government schemes like the Pradhan Mantri Ujjwala Yojana, which have been applauded for their coverage.

“We are already floundering. Restaurants have been affected by price rise — right from steel plates, fuel costs to high prices of food items. And most hotels do not have business when they reopen,” says Chandrashekar Hebbar, the President of the Karnataka Pradesh Hotel and Restaurants Association.

“I have been in the hotel business for several decades. When prices increase, people simply move on to another joint down the road. An increase in the price of items does not mean that revenues increase. Today, most hotels are coping by reducing labour, as demand hasn’t picked up. But most hotels will have no option but to hike the prices,” he says.

Edible oils

The rise in prices of edible oil is driven by a global disruption in supply chains.

The rise of palm, soy and sunflower oil consumption in the country has come with a proportional decrease in groundnut and mustard oil, though absolute consumption has seen a rise.

India imported 13 of the 21 million tonnes of edible oil in 2020 - 21.

And the price of edible oil, particularly palm oil, has been affected by Indonesia’s decision to push for use of palm oil as biodiesel, in addition to the labour shortage in the plantations, according to B V Mehta, the Director of the Solvent Extractors Association of India.

Prices of soy and sunflower oil are also affected by global supply chain constraints stemming from countries like Argentina and Ukraine respectively.

In response, the government had marginally reduced import cess on crude palm oil, sunflower oil and soybean oil by 5 - 7 per cent in August to 30.25 per cent. Yesterday, it further reduced its import cess by 5.5 per cent, so the imports of palm oil, soy oil and sunflower oil will be subject to a 24.75 per cent tax in total.

India has had high retail inflation rates before, most recently in 2010, when it touched 11.98 per cent. In 2020, retail inflation stood at 6.62 per cent and had dropped down to 5.59 per cent in July 2021. But the steep rise in prices of oil and pulses is not fully reflected in the Consumer Food Price Index because their weightage relative to other items is low.

“The major problem now is that people don’t have an income, a large number have lost jobs or don’t have definite employment. So this situation can severely affect food security,” says M Parameswaran, an Associate Professor at the Centre for Development Studies in Thiruvananthapuram.

Kanika Mahajan, an Assistant Professor of Economics at the Ashoka University in Sonepat, says that surveys conducted by the Centre of Economic Data & Analysis at Ashoka showed that a “fall in income is a bigger drive of a fall in consumption than price rise.”

“The recent rise in prices is most definitely a result of the fall in supply, rather than a rise in demand,” Kanika says. “There are also idiosyncratic factors. Globally, the supply chains are not back on track. So there are going to be spillovers. India can’t be insulated from this,” she says.

Inflation policy

Parameswaran contends that inflation in India is largely “structuralist” in nature, which means that it is largely led by increase in prices of agricultural produce, where the demand is “non-substitutable”.

And in a ‘stagflation’ like situation, where growth of the economy is down and inflation persists, the RBI’s usual instruments of controlling inflation might not be sufficient.

The Economic Survey of 2020-21, also seems to echo this sentiment — that though the Consumer Price Index (CPI-C) is the “headline target” for monetary policy, it is affected by supply-side factors that drive food inflation.

“This inflation is due to the structure of the economy. So we need a different kind of measure, like removing supply constraints and increasing the supply of food products,” Parameswaran says, but concedes this might be hard to do in a situation where “global commodity prices are hardening.”

Given this continuing distress, policy experts suggest several measures — fixing long-pending issues in the PDS, exploring wage compensation for workers who have lost their jobs, and launching an urban employment programme.

Other measures suggested include having consistency in import policy, and long-term measures like decentralised cold storage facilities and reducing inefficiencies in domestic supply chains.

“We need to aggressively make sure that people are in the PDS net,” says Basole, adding that since rations are an in-kind system, they are less prone to the vagaries of price rise.

“If the government decided to do a wage compensation of Rs 3,000 for a period of six months, it would cost them 4.5 per cent of the GDP,” says Rajendra Narayanan, a faculty member at the School of Arts and Sciences in Azim Premji University.

“I also think it is imperative that the union government thinks about an urban employment programme. I think there has never been a better time for that,” he says, adding that people can be employed to undertake community works with the urban local bodies, of which there is no dearth.

(With inputs from Varsha Gowda in Bengaluru)