India's households wrestle with inflation as incomes dip

India's households are grappling with rising living costs at a time when jobs and incomes have taken a hit amid the pandemic, but economists are not hopeful the government's annual budget due next week will provide much relief.

Tea, edible oil, pulses, meat, cooking gas and services have gone up by 20%-40% since the COVID-19 pandemic began in early 2020 - hurting consumers while their incomes have fallen below levels seen before the health crisis.

Retail prices have risen nearly 10% in the last two years compared with 8% in the previous five-and-half years after Prime Minister Narendra Modi came to power in 2014, an analysis of inflation data compiled by the Ministry of Statistics showed.

Modi, who remains popular among voters, plans to raise import tax on more items to support local manufacturing and increase spending on long-term projects.

 

Reuters Graphics

Economists blame higher taxes, a widening fiscal deficit, Reserve Bank of India's (RBI) easy monetary policy and supply constraints during the pandemic for a sharp rise in prices.

India's government has offered little aid to households except free foodgrains for the poor.

According to official estimates, average per capita income stands at 93,973 rupees ($1,258) for the current fiscal year ending March, lower than 94,566 rupees before the pandemic.

The unemployment rate was at 7.9% in December, with nearly 35 million people looking for work, a report by Mumbai-based think tank Centre for Monitoring Indian Economy (CMIE) said.

Meanwhile, the economy is projected to grow 9.2% in 2021/22 after a 7.3% contraction the previous year.

The increase in import tariffs on hundreds of goods in the last two years, climbing global crude oil and commodity prices have added to the burden on households.

Cooking gas prices rose 43.36% in two years ending December 2021, compared with a 30.68% rise in the previous five-and-half years, data showed.

However, domestic electricity and education costs rose at a slower pace reflecting a fall in economic activity and the closure of educational institutions during the pandemic.

Inflation is expected to push even higher as manufacturers pass on rising input costs while the central bank delays monetary tightening in efforts to support the economic recovery.

Retail inflation accelerated to a five-month high of 5.59% in December from a year earlier, while wholesale price-based inflation, a proxy for producer prices, marginally eased to 13.56%, but remained in double-digits for nine straight months.

"The COVID period has been a nightmare for Indian workers," said KR Shyam Sundar, a labour economist at XLRI, Jamshedpur, and the author of "Impact of COVID-19, reforms and governance on labour rights".

He added that households suffered job losses, fall in incomes and a sharp rise in prices during the pandemic.

"RBI and the government, which have excessively focused on supporting industry and boosting growth, should now take steps to rein in inflation and provide a relief to households."

($1 = 74.7125 Indian rupees)