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Rising inflation in India puts pressure on Modi government

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The prices of basic necessities such as milk and cooking gas are rising in India, putting pressure on consumers already grappling with the economic shock of the pandemic and posing a new challenge for Narendra Modi’s government.

India reported retail price inflation of 6.3% in June and May, as rising food and fuel prices pushed the consumer price index above average. The central bank’s 6% target for the first time this year. Wholesale price inflation hit a record high of nearly 13 percent in May.

Economists fear that India could fall back into a cycle of uncontrollable price hikes that have hampered its growth for years and placed a political burden on the country’s rulers.

The prospect of higher prices – as inflation rises globally – comes despite uncertain growth prospects. Hopes of a rapid rebound from a historic recession last year have been dampened by a recent brutal second wave of Covid-19 infections.

“It’s very delicate for the country at the moment because you are grappling with a pretty serious growth problem,” said Priyanka Kishore, head of India at research firm Oxford Economics.

Economists believe part of the increase reflects supply chain disruptions induced by the lockdown, but believe it could also lead to more lasting disruptions as commodity prices rise globally.

This prompted the authorities to act, as Indian voters have long been known to turn against governments that preside in times of inflation.

While the Reserve Bank of India left interest rates unchanged for a year, focusing instead on stimulating growth, some economists believe that a rate hike in the next few quarters is more likely.

Central and state governments are also facing calls to reduce high fuel taxes. “Obviously, the higher fuel costs have translated into all segments,” the rating agency CARE wrote in a note. “The government needs to start lowering taxes. “

Price pressures have prompted companies to increase their prices.

Mother Dairy and Amul, two of the country’s biggest milk brands, each raised their prices by Rs 2 per liter this month, which equates to around 4%. Companies cited double-digit increases in wholesale, packaging and logistics costs.

It hit India’s poor and middle classes, who have been hit hard by the economic shocks induced by the country’s pandemic. Rising food prices, for example, have exacerbated food insecurity among vulnerable populations.

Mohammad Huseini, a 48-year-old man who runs a dairy stall in Mumbai, said his sales had fallen 35% since the start of the pandemic.

“I see people buying less 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 price has gone up.

Bittu Gupta, a 55-year-old fruit seller, typically likes to buy three liters of milk a day to feed her five children, but comes down to two. She serves them tea in the morning and glasses of milk to accompany the bread at dinner. “We give them a little less, but they need it,” she said. “Everything goes up. ”

Sagarika Mukherjee, a 27-year-old maid, buys just 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 – is increasing every day,” she said. “It’s hard for the poor but the government doesn’t care about us. We are left to our faith.

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