‘This is all because of politicians’: Rising prices infuriate Indians

With the price of everything from beans to medicine soaring, retiree Philomena Amara has little doubt who is to blame: Indian Prime Minister Narendra Modi’s ruling Bharatiya Janata party.

“They are minting money, only thinking about themselves,” the 70-year-old raged as she scoured a Mumbai market for cheaper options.

India’s poor have already borne the brunt of the country’s strict coronavirus pandemic lockdowns. Now, they are bearing the brunt of rising food costs, as Russia’s war against Ukraine sparks sharp gains in commodity prices around the world.

For the Modi government, the stakes could not be higher. Controlling inflation is crucial in a country where the price of onions can supposedly decide elections, as happened in 1980 when former Prime Minister Indira Gandhi was victorious after her rival oversaw a sharp rise in the cost of onions. vegetable.

India’s headline inflation hit an eight-year high in April at 7.79 percent from a year earlier, before moderating slightly in May to 7.04 percent. But it remains above the upper limit of the central bank’s target range of 6 percent and vegetable costs continued to rise in May, rising 18.26 percent year on year.

“We see upside risks from food inflation,” Goldman Sachs said in a research note.

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In response, the Modi government cut fuel taxes, while the Reserve Bank of India began raising interest rates for the first time in nearly four years. But those efforts came too late to prevent further price increases, analysts said.

“I think the RBI was a bit complacent and so was the government. The focus had just been on [economic] growth,” said Shumita Deveshwar, senior director of India research at TS Lombard.

The surge in inflation coincided with the withdrawal of central bank easing measures in the pandemic era and a heat wave hitting India’s wheat harvest.

The RBI has cut its gross domestic product growth forecast for the year ending March 2023 to 7.2 percent, from 7.8 percent in February.

In response to rising food prices and crop damage, New Delhi has capped wheat exports and announced a cap on sugar shipments, as well as cooking gas subsidies for low-income households.

The government’s excise tax cuts for gasoline and diesel should ease inflation directly by 0.2 percentage point and indirectly by 0.5 percentage point, according to HSBC.

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But the fiscal cost of the fuel tax cuts is steep: HSBC estimates Rs1 trillion ($13 billion) in lost government revenue. New Delhi also said it would help farmers by doubling fertilizer subsidies, which would increase the burden on government finances.

In total, economists estimate that the new tax measures will cost the state 2 trillion rupees, which is equal to at least 0.5 percent of GDP.

For the government, “it’s definitely a difficult balancing act right now,” said Sonal Varma, Nomura’s chief economist for Asia ex-Japan.

That comes on top of Finance Minister Nirmala Sitharaman’s budget in February, which aimed to increase capital spending by a third to around $100bn through infrastructure spending.

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Sanjiv Bajaj, president of the Confederation of Indian Industry, one of the country’s largest business associations, said the government and the RBI were tackling inflation in a “practical” way. “You don’t want to kill the goose that lays the golden eggs, so they have to balance growth with inflation,” Bajaj said.

But half of respondents to a recent CII survey cited rising import costs as a concern after the rupee hit a series of record lows against the dollar this year.

The biggest problems facing the Indian industry are “inflation and international uncertainties,” Bajaj said.

But support for the BJP has held up despite a history of extreme price sensitivity among voters, said Neerja Chowdhury, a political commentator in New Delhi.

The ruling party’s combination of Hindu nationalist rhetoric and a strong emphasis on social benefits helped bolster his popularity despite the economic impact of the pandemic. The BJP swept a series of state elections this year.

But he added: “There is a limit to people’s tolerance. That’s why [the government] reduce taxes on gasoline. A lot depends on how they handle the situation.”

There are signs that some voters, like Amara, who is already cutting back on vegetable purchases, are fed up. They feel they have been abandoned by the government, a feeling that threatens to grow with the onset of the monsoon season, which even in times of low inflation often leads to higher food prices.

“This is all due to politicians,” Amara said. “[They are not even] looking at the price rise.

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