This year inflation will lead to our economic recovery

The second wave of the Kovid epidemic in India is becoming far more serious than expected. New infections of the coronavirus now cross 300,000 per day, with more than 2,000 daily deaths. Clearly, this time the human cost and burden on our health infrastructure is much worse than it was at the peak of last year’s waves. However, unlike in 2020, when the central government imposed a strict lockdown of more than two months, this time the government has avoided imposing a full lockdown. Although state governments have imposed their own reforms, they are less severe and limited than last year’s national lockdown. With Prime Minister Narendra Modi making it clear that a national lockdown is unlikely to be an option given its impact on the economy, especially lives and livelihoods, economic losses could be less severe compared to last year.

However, the economic consequences of the second wave could be worse than 2020, if not worse. India’s economic recovery will be far more painful than the resumption of trade operations after last year’s All India Lockdown. Mainly due to the scale of the epidemic, it is now quite large. Also, unlike last year, when cases were steadily rising, they reached alarming proportions in a very short period of time, testing health infrastructure in many states. Despite expert warnings that the severity of the second severity is likely, preparations to deal with it are minimal. In addition, the concentration of epidemics in economically crucial states such as Maharashtra, Gujarat, Uttar Pradesh, Karnataka and Delhi means local restrictions that adversely affect economic activity even without a national lockdown. The result of the trail is already visible in lost livelihoods and the second expulsion of migrant workers from cities in these states. It can also lead to an appetite crisis, which should be attended to immediately.

Another factor that is making it harder to recover this year is rising inflation. Our economy has not yet fully recovered, and despite the low demand, the last three months have seen steady increases in price levels. Unlike previous episodes of inflation, this time it will only run somewhat by rising domestic food prices. It runs mostly as core inflation rises. The Reserve Bank estimates that inflation will rise for some time this year. Some of these are global commodity price trends, which have been on the rise lately. In March, the Food and Agriculture Organization (FAOO) food price index rose for the tenth consecutive month, the highest level since June 2014. This increase driven by edible oils, meat and dairy products is also reflected domestically in prices. Although total inflation has risen in the last three months behind urban price inflation, at 6.52% in March, overall retail inflation is also rising, our March figure is at 5.5%. As per the international trend, inflation in fruits and vegetables has come down while prices of our cereals have come down, but edible oil inflation is at 25% and pulses inflation is at 13%.

As the economies of many other countries, including developed ones, are now on the path to recovery, inflation is likely to remain high for the rest of the year, driven by international prices as well as domestic pressures. A modest rise in the prices of primary commodities, as seen in international markets, will increase inflation in the Indian economy, thereby complicating recovery. As petroleum prices also rise, the rupee will weaken and monetary and monetary policy management will come under considerable pressure.

While rising inflation poses obvious problems for economic management, it also affects the situation of hunger and malnutrition in the country. With jobs soaring, waves of migrants returning to their villages and consequently declining economic activity, we are back to a situation where the pandemic crisis is compounded by pandemic inflation. But it is time for the Center to let go of financial prudence and transfer as much resources as possible to the states not only in cash but also in type.

Contrary to the 21 million tonne buffer requirement, the government should expand and expand its scheme to distribute surplus food through the public distribution system, with a stockpile of 77 million tonnes of food grains by April 1. With the next round of collection underway, this is not only possible, but desirable as well. What is important at this stage is to protect the economy, but also to prevent Kovid from creating another humanitarian crisis.

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