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Will raging inflation wreak Indian economy?

Risk of raging inflation

The Chennai International Centre (CIC) presented BJP MP from Hazaribagh, Jharkhand, Jayant Sinha through a webinar programme. Sinha had earlier been a minister in Modi’s NDA II government, handling finance and civil aviation. He is the Chairperson for Standing Committee on Finance.  Sinha graduated from IIT, Delhi, did his Masters from Pennsylvania, USA and a MBA from Harvard Business School. For over a decade he also worked for McKinsey & Co at Boston and Delhi. So it was no surprise his presentation was lucid and evocative. He also responded well to a range of questions related to post Covid India.

I raised the issue of experiencing unrestrained price increases that could wreak havoc on the economy. Look at the areas of concern:

During the lockdown few shops were allowed to function for limited hours. Retail chain stores like Reliance and More had near monopoly in several parts of the city. For other provision stores, the logistics of reaching goods had been severely disrupted. The lockdown also meant near total stoppage of production of a vast range of goods. eg. soaps, toiletries, biscuits With the lifting of the lockdown such shops and stores will re-open in thousands.   But it would take time to get the supply chain in place. This means shortage of goods at the shops. One can imagine the tendency to exploit the shortage with high prices.

Several corporate hospitals are notorious for their arbitrary pricing. Even in normal times there have been serious complaints on their resorting to tests and diagnoses dictated at the point of knife. They have been routinely charging Maximum Retail Price (MRP) for medical devices like implants or drugs sold to patients. On bulk purchases of these surely there should be hefty discounts. One also noticed their liberally charging for the cost of Personal Protective Equipment (PPEs) of the medical personnel. There were reports on the per day cost for Covid19 treatment at even Rs 70,000. There is a justifiable deification of the Corona warriors. Should these include such robber barons overtly concerned with quarterly results?

Scarcity is bound to persist in a vast range of services. Sinha as an ex minister of civil aviation should be familiar with the dynamic pricing adopted by airlines. During festival seasons, a normally priced fare of Rs 3000-Rs 4000 used to be hiked to even Rs 30,000. Airlines will, of course, justify an increased fare due to social distancing which will require reduced seating capacity.

Add to these, is the impact of pumping an additional Rs 5.2 lakh crore into the economy by relaxing the fiscal deficit limit; This can jump to around 5.5 per cent of GDP.

There is thus the danger of a big spurt in prices.

Sinha hopes for the Competition Commission and other regulatory mechanism as also competition in the market place would address these problems.

Do you agree? I am not sure. The closure of the Koyambedu market  for eight days resulted in  a very big jump in the prices of onion, tomato, potato… Extrapolate this to the pricing of hundreds of essential manufactured goods whose supply chain would take time to settle. Would we return to double-digit inflation?

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