Rising fuel costs slow growth

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Rising fuel costs slow growth

Monday, 13 July 2020 | Shivaji Sarkar

Any society that pays high for its fuel suffers as this erodes incomes, reduces purchasing power and causes a slowdown in the pace of production

The rising prices of food items are adding to the woes of the people even as they struggle to come out of the economic impact the Coronavirus-necessitated lockdown has had on their lives and livelihoods. Now that India has moved into a phased “unlocking” stage, States like West Bengal, Assam and Uttar Pradesh are in a quandary whether to allow full opening of their economies or continue as before with select sectors being allowed to open up.  This uncertainty is disrupting supply chains and creating artificial shortages in most parts of the country.

It is a double whammy. Recession has hit not only India but the entire globe. Job losses, reduction in income and fall in production are common. But in countries like India, the rising cost of transportation due to the unprecedented hike in administered petroleum/diesel prices, is telling on the people. Given the reduced purchasing power, inflation has added to the woes of consumers and farmers alike. Despite higher minimum support prices, farmers have not been able to get even the minimum cost for their produce and have been forced to sell at rock-bottom prices.

Since most restaurants, hotels and processing plants remain under lockdown, the demand for vegetables and foodgrains is low. This has a direct bearing on most farm produces. Corn for example fetched `2,200 per quintal in 2019 but this year it is difficult to get even one-fourth of that price. So a farmer who earned `20 plus lakh last year, despite better production, is content with `5 lakh this year. Plus, the farm sector is in trouble as input costs have increased manifold during the last few months. Even irrigating the fields costs more than double now, as the administered price of diesel has set new records.The people are certainly not beneficiaries of the crash in crude prices to around $40 a barrel as the taxes have remained high. Any society that pays high fuel costs suffers in more than one way. It erodes incomes, reduces purchasing capacity and causes overall slowdown at a time when pace in production is a must.

However, the rising food prices are in reality a pre-Corona phenomenon. Even in December 2019, prices were rising. The Consumer Price Index (CPI) rose 14.2 per cent on an annual basis. This was the highest increase since December 2013. The latest 20 to 40 per cent rise in prices of vegetables is attributed to higher labour costs and 15 to 20 per cent higher transportation costs. Supplies, too, have reduced by about 15 per cent due to summer rains damaging  vegetable crops. The shortage of labour following the reverse migration has increased wages of farm labourers.

These all reflect in the spiralling vegetable and food grain prices. Even prices of rice and wheat have increased in the market despite a massive dole being given to the poor by the Government. It is said that in about 11 States, the free distribution of foodgrains has not happened as planned. According to the Ministry of Consumer Affairs data, 36 States and Union Territories procured 6.38 lakh metric tonnes (mt) of eight lakh mt allocated for migrant workers by the Centre for the months of May and June. However, till June 30, just 1.07 lakh mt, about 13 per cent of the foodgrains was distributed. Andhra Pradesh, Goa, Gujarat, Jharkhand, Ladakh, Maharashtra, Meghalaya, Odisha, Sikkim, Tamil Nadu, Telangana and Tripura had distributed not more than one per cent of the supplies got by them.

The crisis has been building up on the price front since the 2019 general elections. The Food Corporation of India (FCI) procured 36 million tonnes prior to that in 2018, the highest since 2012-13. It swelled the FCI’s stocks to 75 million tonnes — 33 million tonnes of wheat and 42 million tonnes of rice. It is estimated to be about one-third of the total production. It has been utilised well for distribution till coming November at a cost of `1.5 lakh crore. But the mismatch in distribution, the market supplies and other factors have continued to add to the prices.

Interestingly enough, despite free supplies, the prices have not come down in rural markets either. This is intriguing. It is attributed to reverse migration causing a large influx in rural areas. The prices of edible oils have also noticed significant spikes. The village markets have seen a spiral in locally-produced oils. This has happened due to the rise in mustard and other oilseeds prices, labour costs, electricity and diesel prices. Overall, expelling and freight costs have increased. The Reserve Bank of India (RBI) in June noticed the inflationary situation. Its Monetary Policy Committee (MPC) says, “The macroeconomic impact of the pandemic is turning out to be more severe than initially anticipated because of supply disruptions and demand compression. Beyond the destruction of economic and financial activity, livelihood and health are severely affected.” The MPC says it is necessary to ease financial conditions further. It reduced interest rates which caused hardships and further reduced purchasing power of the most vulnerable classes. There may not be any magic wand but a soft policy approach and reduction in Income-Tax rates for now would help the common man. With a benevolent tax regime, prices too can mellow. It would reduce governance costs and add to the well-being of the country.

(The writer is a senior journalist)  

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