With prices of everything from beans to drugs skyrocketing, retiree Philomena Amara has no doubt who is to blame: Indian prime minister Narendra Modi’s ruling Bharatiya Janata party.
“They’re digging for money, thinking only of themselves,” said the 70-year-old frantic as she scoured a market in Mumbai for the cheapest options.
India’s poor have already been hit hardest by the country’s strict coronavirus containment measures. Now, they are bearing the brunt of the rise food costwhen Russia’s war with Ukraine caused commodity prices in the world to rise sharply.
For the Modi government, the stakes could not be higher. Controlling inflation is paramount in a country where onion prices can determine elections, as happened in 1980 when former prime minister Indira Gandhi won after her opponent vegetable prices increased sharply.
IndiaHeadline inflation hit an eight-year high in April of 7.79% from a year earlier, before adjusting slightly in May to 7.04%. But it remained above the bottom end of the central bank’s target range of 6%, and fruit and vegetable costs continued to climb in May, up 18.26% year-on-year.
“We see increased risks from food inflation,” Goldman Sachs said in a research note.
In response, Modi’s government cut fuel tax while Reserve Bank of India Start raising interest rates for the first time in almost four years. However, analysts say those efforts have come too late to halt further upside momentum.
“I think the RBI was a bit complacent and so was the government. The focus has just been focused on [economic] Shumita Deveshwar, senior director of Indian studies at TS Lombard, said.
The increase in inflation has coincided with the withdrawal of central bank relief measures during the pandemic and heat wave that has affected India’s wheat crop.
The RBI cut its gross domestic product growth forecast for the year ending March 2023 to 7.2%, down from 7.8% in February.
In response to rising food prices and crop damage, New Delhi has restricted wheat exports and announced limits on sugar shipments and cooking gas subsidies for low-income households.
According to HSBC, the Government’s reduction of excise tax on gasoline and diesel will directly reduce inflation by 0.2 percentage points and indirectly by 0.5 percentage points.
But the financial costs of fuel tax cuts are high – HSBC estimates Rs1tn ($13 billion) in lost government revenue. New Delhi also said it would help farmers by doubling fertilizer subsidies, adding to the financial burden on the government.
Overall, economists estimate that the new fiscal measures will cost the state Rs 2 billion – or at least 0.5% of GDP.
For the government, “it’s definitely a tough balancing act right now,” said Sonal Varma, Nomura’s chief economist for Asia excluding Japan.
That is on top of Finance Minister Nirmala Sitharaman’s budget in February, which aims to increase capital expenditure by a third to about $100 billion through infrastructure spending.
Sanjiv Bajaj, president of the Confederation of Indian Industry, one of the country’s largest business associations, said the government and RBI are approaching inflation in a “realistic” way. “You don’t want to kill the golden goose that lays its eggs, so they have to balance growth with inflation,” Bajaj said.
But half of respondents to a recent CII survey said rising import costs were a concern after the rupee hit a series of record lows against the dollar this year.
The biggest problems facing Indian industry, Bajaj said, are “inflation and international uncertainties”.
Neerja Chowdhury, a political commentator in New Delhi, said support for the BJP has remained despite a history of price sensitivity among voters.
The ruling party’s combination of Hindu nationalist rhetoric and a strong emphasis on welfare interests has helped bolster the party’s popularity despite the economic shock of the pandemic. The BJP swept a series of state elections this year.
But she added: “There is a limit to everyone’s tolerance. That’s why [the government] fuel tax cuts. Much depends on how they handle the situation.”
There are signs that some voters, such as Amara, who have cut back on vegetable purchases, have had enough. They feel abandoned by the government, a sentiment that is at risk of increasing with the onset of the monsoon season, which even during periods of low inflation often leads to higher food prices.
“It’s all down to the politicians,” Amara said. “[They are not even] look at the price increase. “
