Inflation Started Soaring Again….

The common man has encountered the most significant shock of inflation during the festival season. The National Statistical Office (NSO) reported on Monday that retail inflation rose to 5.49 percent in September, attributed to higher food prices.  This is the highest level of retail inflation in last 9 months. After 59 months, the retail inflation rate was below four per cent in July and before that the last time in August 2019 was the inflation rate below four per cent. According to NSO data, inflation in food items jumped to 9.24 percent in the month of September, which was 5.66 percent in the previous month in August and 6.62 percent in the same month a year ago. Inflation rate in rural areas increased from 4.16% in August to 5.87% in September. At the same time, in urban areas this rate increased from 3.14% in August to 5.05% in September. 

The Monetary Policy Committee of the Reserve Bank was given the task to keep retail inflation between 2 percent to 4 percent by March 31, 2026, but this does not seem to be happening. Last week, RBI had not made any change in the repo rate (6.5) for the 10th consecutive time, expressing the fear of inflation rising again. There are two types of inflation rates in India, retail and wholesale inflation. Retail inflation rate is decided on the basis of the prices that customers pay. It is also called consumer price index. At the same time, the wholesale price index is determined by the prices exchanged between traders in the wholesale market.

In fact, high inflation rate is a threat to the economy. For some time now, the kitchen budget has become uncontrolled and unbalanced. The increase in inflation can be mainly attributed to the significant increase in the cost of food and fuel. There has been a huge jump in the prices of tea, pulses and edible oil. Inflation is a matter of global concern as well as for India, hence inflation is not a problem only for India. 

The biggest reason for increasing inflation is the skyrocketing prices of vegetables. Due to heavy rains the production of essential crops has reduced. 

Food prices should decline, focus should be on increasing the supply of agricultural commodities. Inflation occurs when the effective demand for a good or service exceeds the available supply. The cost of supply and the quantity supplied determine the supply-side dynamics of inflation. Traditionally, India has been suffering from problems like poor road infrastructure, poor transportation facilities, outdated warehouse and cold storage facilities, etc. All these contribute to retail inflation, although the PM Gati Shakti project is addressing all these.

Governments should continue to carefully examine their trade policy to reduce food inflation and also create buffer stocks for volatile vegetables such as tomatoes, onions and potatoes (TOP). Expansion of cold storage infrastructure using solar energy at low cost will be important to help farmers get stable prices for their produce during times of abundance. This allows the government to systematically release stocks during lean periods or during festival seasons, when demand is high, to bring down prices.

The second biggest reason for inflation is oil, whether it is fuel or edible oil, more part of our income than ever is now being spent on oil. Taxes on petroleum products in the form of excise duty and VAT are around Rs 35 to Rs 50 per litre. If this is reduced then the prices of these products will come down and then its effect will start being visible on the prices of everything. Actually, the government earns money from petrol-diesel tax and uses the amount received in welfare schemes. The government should reduce its dependence on the income from these two, only then inflation can be controlled.

The government can also meet its revenue from other items, the tax revenue collection of the government is good at present. On the other hand, if the government wants, it can increase taxes like corporate tax, wealth tax to increase tax revenue. If the government wants, it can earn crores by imposing a small tax on the stock market as well, it will not have a direct impact on the people because the stock market represents only 5 percent of the people of the country. There is a need to carefully monitor the fluctuations in crude oil prices. Also, tax exemption on hybrid and electric vehicles will have to be increased. In the coming days, due to the Iran-Israel war, the prices of crude oil will increase rapidly because Iran is one of the largest crude oil producers in the world, hence it can have a special impact on India, which imports 80 percent of the oil, although India used to buy crude oil earlier from 27 countries, now the number of these countries has increased to 39.

In fact, solving any problem starts with accepting that the problem exists and that inflation is not just a political issue. Distributing small amounts of food grains to the underprivileged will not be enough to bring the economy back on track. The impact of inflation has far-reaching effects on the common people, pushing them towards poverty. Controlling inflation should be the priority of the government. 
The government will have to pursue a multi-pronged strategy to control inflation because inflation will inevitably impact India's GDP.  If inflation goes out of control, RBI will have no option but to increase interest rates. The threat of rising inflation and hyperinflation should not be taken lightly. Now that the US dollar has gone above Rs 84, India's economy needs a strong manufacturing and agriculture sector.