India’s rising inflation puts pressure on Modi government

India’s rising inflation puts pressure on Modi government

Poor households struggle with increasing prices for essentials such as food and fuel

The price of essentials such as milk and cooking gas is rising in India, piling pressure on consumers already battling the economic shock from the coronavirus pandemic and posing a challenge for Narendra Modi’s government.

India reported retail inflation of 6.3 per cent in May in June, as increasing costs of food and fuel pushed the consumer price index above the central bank’s 6 per cent target for the first time this year. Wholesale inflation hit a record high of almost 13 per cent in May, before dipping to 12 per cent in June.

Economists fear that India could fall back into a cycle of runaway price increases that has plagued its growth for years and presented a political burden for the country’s leaders.

The prospect of rising prices as inflation ticks higher around the world came despite an uncertain growth outlook for the country. Hopes of a swift rebound from a historic recession last year were damped by a brutal second wave of Covid-19 infections.

“It is very tricky for the country at this point of time because you’re grappling with a pretty serious growth problem,” said Priyanka Kishore, India head at research firm Oxford Economics. 

Economists said part of the price increases reflected lockdown induced supply chain disruption, but added that longer-lasting pain could be on the way as commodity prices rise globally.

This prospect has put pressure on Indian authorities to act. Voters have been known to turn on governments that preside over inflationary spells.

While the Reserve Bank of India has left interest rates unchanged for a year, focusing instead on reviving growth, some economists believed a rate increase in the coming quarters was likely.

The central and state governments have also faced calls to cut high fuel taxes. “Quite clearly, the higher fuel costs have gotten translated into all segments,” rating agency CARE wrote in a note. “There is a need for the government to start lowering taxes.”

Those pressures have prompted companies to raise prices.

Mother Dairy and Amul, two of the country’s largest milk brands, increased prices Rs2 ($0.03) per litre this month, equivalent to about 4 per cent. The companies cited double-digit increases in wholesale, packaging and logistics costs.

The price increases hit India’s poor and middle classes, who have borne the brunt of the country’s pandemic-induced economic shocks. Rising food prices, for example, have exacerbated food insecurity for vulnerable populations.

Mohammad Huseini, a 48-year-old who runs a dairy stall in Mumbai, said his sales had fallen 35 per cent since the start of the pandemic.

“I am seeing people buying less quantities because people have lost their jobs,” he said. “People don’t have money to spend, but milk is essential, so people have to buy it even if the cost has gone up.”

Bittu Gupta, a 55-year-old fruit vendor, usually buys three litres of milk a day to feed her five children, but she has cut back to two. She serves them tea in the morning and glasses of milk to go with bread for dinner. “We are giving them a little less but they need it,” she said. “Everything is rising.” 

Sagarika Mukherjee, a 27-year-old maid, buys only enough to give her 10-year-old son a bowl of oats, forgoing small pleasures such as tea for herself. 

“The price of everything — vegetables, rice — all are rising everyday,” she said. “It is difficult for the poor but the government is not bothered about us. We are left to our faith.”

Benjamin Parkin in New Delhi and Andrea Rodrigues in Mumbai

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