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Inflation ‘Under Check’ in 2015 but food items beg to differ

When it comes to inflation, the year 2015 has shown that the macroeconomic datapoints may not always show the real picture and the cases in point relate to quite a few kitchen staples such as potato, onions and pulses.

Inflation

For records, the Consumer Price Inflation has remained well under control hovering in the range of 3.66-5.4 per cent so far, while the industry chambers and some other experts are hopeful that it would keep below 6 per cent mark in the New Year – a target set by the Reserve Bank of India.

However, the consumers saw an altogether different story in 2015 when they went to the shops to buy some food items.

Industry body FICCI said India has been experiencing a phase of “disinflation” given the plunge in crude oil prices and prices of other commodities and raw material and this trend is expected to continue over the near term. “At the same time, increase has been noted in prices of agricultural commodities like pulses, edible oil, for which the government is taking appropriate action. Thus, inflation in near term is likely to remain within the RBI target,” FICCI said.

Despite these favouring factors, India battled weather-related woes as the country saw two straight years of deficient monsoons in 2014 and 2015.

Deficient rains during the July-September Monsoon this year is likely to impact the rabi or winter crops, which will be harvested by March-end, as adequate soil moisture is important for growth of winter crops such as wheat, mustard, oil-seeds besides some varieties of pulses. Almost 60 per cent of the crop in the country is rain- dependent, while the rest is well irrigated.

“The common man will continue to pay lower prices on fuel and transportation, although further declines are unlikely. The behaviour of food prices will be uncertain as supply shortages could lead to sporadic increases in the prices of specific items,” CII’s Banerjee said.

According to an RBI expert group, global commodity prices continue to impart some disinflationary momentum, but there are some upside risks to inflation from internal factors such as negative monsoon shocks, binding supply side constraints, government consumption shocks due to Seventh Pay Commission Award.

“Tax collections, both direct and indirect tax, are an important source of revenue for the government that is utilised for various purposes… It is to be ensured that undue pressure is not put on the existing set of tax payers, which adversely impacts their savings and consumption,” said Vikas Vasal, Partner-Tax, KPMG in India. “Any additional tax or levy especially on the indirect taxes like VAT or services tax impacts the ultimate consumer, as the burden of these taxes is generally passed on to the consumer,” he added.

Both Ficci and CII have suggested to the government to address the supply chain bottlenecks by beefing up the post-harvest handling and distribution infrastructure and making Public Distribution System (PDS) efficient.

This year, the government and the RBI also signed a Monetary Policy Framework agreement with the objective maintaining price stability, commensurate with the objective of growth.

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