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The surge in prices of essential commodities disproportionately affects the poor on a larger scale. Ahead of the general election, a pre-poll survey by Lokniti and SCDS highlighted that unemployment and inflation are pivotal concerns for voters, particularly among marginalized groups such as backward castes, extremely backward castes, and minorities, notably Muslims (The Hindu, April 11). This underscores the ground reality despite India’s robust GDP growth exceeding 7%, positioning it as the third-largest global economy by 2027, as projected by various global organizations.

Understanding Inflation Beyond Economic Indicators

To illustrate, consider a group of commodities priced at Rs. 100 in the current year, escalating to Rs. 110 by 2025, indicating a 10% inflation rate. If prices then climb to Rs.120 in 2026, the inflation rate decreases below 10%. However, this reduction in inflation does not imply price decreases uniformly across all commodities; some may rise while others fall. Thus, inflation impacts diverse segments of society unevenly, with the poor bearing the brunt, as will be discussed later.

Economic Impact of Inflation

Inflation erodes the purchasing power of money, diminishing the quantity of goods and services affordable with the same income, thereby reducing living standards, particularly for vulnerable groups unprotected from price fluctuations, such as those in the informal sector.

Borrowers benefit from inflation, as it reduces the real burden of debt repayment due to lower real interest rates, while lenders suffer reduced real returns on investments in the short term. Inflation can also lead to “bracket creep,” where income tax brackets do not adjust to inflation, resulting in higher taxes on nominal income increases caused solely by inflation.

Governments face challenges with fluctuating tax revenues in real terms due to delayed revenue collection amid inflation, while the real value of debt declines, affecting fiscal policies differently.

Economic Relationships and Policy Implications

Economists, including Ashima Goyal from the RBI’s Monetary Policy Committee, discuss the implications of inflation on economic growth. Goyal suggests that with inflation under control and anticipated growth at 8%, India can sustainably maintain this growth trajectory. However, policies aimed at controlling inflation, such as raising policy rates, can potentially reduce GDP growth by affecting aggregate demand elasticity.

Impact on the Poor in India

Despite headline inflation easing to a 12-month low of 4.75% recently, concerns persist over rising food prices, particularly cereals and pulses, which form a significant portion of household budgets for the poorest. Urban areas experience sharper increases in food prices compared to rural regions, exacerbating disparities in living costs.

The Consumer Food Price Index, showing an increase to 8.69%, underscores the ongoing challenges faced by ordinary citizens. Vegetable prices have soared, with a six-month average inflation rate of 27.3%, led by significant increases in tomato, onion, and potato prices (The Hindu, Editorial, June 15). Political reactions have escalated, particularly regarding tomato prices exceeding Rs. 100 per kilogram.

The recent data from the Department of Consumer Affairs reveals substantial year-on-year price hikes for essential food items: tomatoes (35%), onions (58%), potatoes (44%), rice (13%), and wheat (5.4%). Pulses also exhibit double-digit inflation rates, with significant increases in prices for gram dal (17%), Tur (27%), Urad (13%), and Moong (8.5%).

Conclusion

The plight of the common people amid rising GDP growth, foreign investments, digital payment proliferation, manufacturing incentives, and extensive infrastructure projects underscores the necessity for comprehensive and sustainable economic policies in a country like India, where over 60% of the population struggles to secure basic livelihoods. Economic development must prioritize inclusive growth to mitigate the adverse impacts of inflation on vulnerable segments of society.