India’s rising inflation puts pressure on Modi government

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 pandemic and posing a new challenge for Narendra Modi’s government.

India reported retail inflation of 6.3 per cent in June and May, as rising 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 nearly 13 per cent in May. 

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

The prospect of rising prices — as inflation ticks higher globally — comes despite an uncertain growth outlook. Hopes of a swift rebound from a historic recession last year were damped by a brutal recent 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 think part of the increase reflects lockdown induced supply chain disruptions, but believe it could also lead to longer lasting disruption as commodity prices rise globally.

This has pressured authorities to act, with Indian voters long known to turn on governments that preside over inflationary spells.

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

The central and state governments are also facing 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 need for the government to start lowering taxes.”

The price pressures have prompted companies to raise prices.

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

This has 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 likes to buy three litres of milk a day to feed her five children but is cutting 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 like 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.”