June , 2022
Ongoing inflation hurting rural and agricultural labourers
00:16 am

Kishore Kumar Biswas

The ongoing price inflation is a concern not only in India but also for the global economy. The purpose of this article is to concentrate on the inflation occurring in the Indian economy with focus discussion on its impact on rural and agricultural workers.

The meaning of inflation is not high prices of goods and services in an economy but the rising prices of overall goods and services. That means when the price level increases over time, it causes price inflation. The rate growth of inflation of a period, say of a particular month, is measured by comparing the price level in the previous FY of the corresponding month.

Measures of inflation

There are two measures, consumers’ price Index (CPI) or retail price index and wholesale price index (WPI). The RBI in India and most of the central banks (187 countries of the world) consider CPI as the indicator of controlling inflation of their respective economies. The CPI and WPI are measures with different types of commodities and also with different respective weights or importance of those items. In India, CPI index includes 299 commodities to estimate it whereas WPI includes 676 commodities. In CPI, the weight of consumers’ goods possess 46% and petroleum products contain only 7% and other products have a weight of 47%. On the other hand, in estimating WPI the manufacturing goods contain 65% weight, petroleum products receive 13% and food items have 21%.

Inflation in India

Since April 2021, WPI based inflation has been above 10% in every month. In April 2022, the WPI rose above 15%. In April 2021, WPI had reached 10.7% and on top of that, the 15% spike in WPI must be intolerable. The CPI inflation has also been rising - it rose to 8.3% in April 2022 as compared to April 2021.

How does inflation affect an economy?

First, it hurts the fixed income groups by lowering their purchasing power. The overall demand of goods and services may decrease. This may lower the production level or GDP and hence may lead to lower employment. This in turn lowers the demand side of the economy.

Secondly, inflation hurts the savers. This is because the returns from savings fall in real terms. At present, the real returns from savings, the rates of interest on savings in India, have been negative for a considerable period of time. It may happen when the rate of inflation is more than the interest rates on savings. 

Thirdly, foreign trade is affected. Imports and exports are very much dependent on exchange rates of currencies involved in trade. If a country suffers from inflation that means its currency is devalued and hence it has to pay more amount of domestic currency compared to the foreign currency. Importers have to pay higher amounts of home currency but exporters may get some advantage.  Fourthly, prices of sovereign bonds may rise – which may shake the entire financial market of the country. Fifthly, the central bank of the country involved has to take stringent or tight monetary policies that include raising policy rates, repo rate, the reverse repo rate. It may also need to undertake other policies like raising the cash reserve ratio (CRR). This may lead to increase in the price of credit and investors may be discouraged to go for investment - leading to lower GDP and employment. Lastly, inflation expectation plays a key role. If people think that inflation may continue for a longer period then a section may delay purchasing goods and services as well as their investment plans.

The rural and agriculture labourers are affected most

The Ministry of Labour of the Indian government said in a release on May 21, 2022 that CPI for agricultural and rural workers has increased by 10 points each. An increase in the prices of wheat-atta, jowar, bajra, ragi, vegetables and fruits contributed the bulk of the spike in the two indices with April’s CPI-AL rising and the CPI-RL climbing to 1119 points. AL and RL represent agriculture and rural labour. The food group contributed 7.32 and 7.13 points respectively. Notably 19 states recorded an increase of between one to 20 points in the CP-AL index. Tamil Nadu, which recorded a decrease of 7 points from March, topped the table with 1,275 points. On the other hand, Himachal Pradesh with 880 points stood at the bottom. According to VV. Giri, National Labour Institute said, “If this continues, there is no doubt that it will make the existing agricultural distress more painful for the workers and farmers.”

V. Venkat, General Secretary, All India Agriculture Workers Union pointed out that agricultural and rural workers would spend 50% of their income on food items. This would adversely impact them, particularly, those from the Dalit and Adivasi communities. Venkat urged the government to start transferring `7,500 to each rural and agricultural worker's families and to allocate food to these families.


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