Rising inflation and falling production and employment add to the public health crisis

India’s economy seems to be going out of control under the pressure of the virulent expansion of Covid-19. What else can explain the rapid fall in industrial production and massive jump of wholesale and retail prices in the last three months?

Partial lockdowns are back in various states. More areas are being brought under ‘containment zones’. A situation of ‘medical emergency’ has unsettled everyone’s mind. Lately, the daily Covid infection count has been growing at around 350,000 people, a world record. Jobless and homeless migrant workers are once again rushing back home from seriously virus-hit states such as Maharashtra, Delhi, Gujarat and Punjab. The transportation system, both local and inter-state, is showing the signs of a major breakdown as the virus expansion continues to worsen.

Several international airlines and airports have temporarily ‘blocked’ India. Domestic airlines have cut down services for want of passengers. Some political parties in West Bengal hold the on-going election campaign responsible for the viral spike in the state. But, that may be only partly true. Most states showing more rapid coronavirus expansion are outside the current assembly election schedule.

Notably, the virus seems to have chosen mostly the middle class, the rich, film stars, bureaucrats, judges and lawyers more than the poor and the working class as its target. All are rushing for vaccines which are in short supply. The government is being blamed for vaccine export though the latter was done earlier for diplomatic than purely humanitarian or business reasons. Unlike individuals, the government has to maintain a balance between the country’s needs and diplomatic relations with its neighbours at a difficult time like this.

In the process, the government is at the receiving end from both the public and frontline health service providers, struggling to get vaccines and adequate oxygen supplies. Supply crisis of oxygen for Covid patients, growing shortage of hospital beds and careless management of Covid hospitals in most parts of the country have created a pathetic situation. The media is full of Covid-related reports and comments. Unfortunately, few are concerned about massive price inflation and loss of earnings of industrial workers, services-sector employees and daily-wage labourers. Thankfully, the government has decided to partially restore free-ration (wheat and rice) for the poor in ensuing hot summer months, May and June.

The common man’s struggle for survival is becoming increasingly precarious. The country’s wholesale price inflation rose across the board to over an eight-year high of 7.39 percent in March, according to the latest data released by the union commerce and industry ministry. And this came after the wholesale price index (WPI) increased 4.17 percent during the month of February and 2.51 percent in January.

“The prices of crude oil, petroleum products and basic metals substantially increased in March 2021 as compared to the corresponding month last year. Also, due to nationwide lockdown, the WPI index for the month of March 2020 (120.4) was computed with relatively low response rate,” the ministry statement said. Inflation in oils and fats category was the highest at 24.92 percent in March compared to 20.78 percent a month ago. Prices of pulses rose to 13.25 percent from 12.54 percent in February. Inflation in transport and communication was at 12.55 percent compared with 11.36 percent in February. Inflation in fruits was at 7.86 percent compared with 6.28 percent in February. Health inflation during the month was at 6.17 percent. Fuel inflation stood at 4.5 percent. Clothing and footwear inflation was at 4.41 percent. Housing inflation stood at 3.5 percent. Household goods and services inflation was at 3.28 percent in March.

More than the rising consumer inflation the northward movement of core inflation is becoming an equally big concern. This refers to the rise in prices of goods and services other than highly volatile prices of energy and food. Core inflation is considered as a prime indicator of underlying long-term inflation. It is used to calculate the impact of rising prices on consumer income. Core inflation this year is well above last year’s level. The key components of core inflation are housing, education, household goods and services, transport and communication, recreation and amusement, and personal care. The fact that prices in these categories remain sticky is an essential factor in driving core inflation.

Alongside the rising inflation, shrinking industrial production adds to the concern. Both bring pressure on the common man’s pocket by way of expenditure and income abilities. Going by the records of the ministry of statistics and programme implementation, the industrial output is showing an uncomfortable downtrend. The ministry’s stats covered only up to the month of February. The country’s farm production dropped 3.6 percent in February 2021 from a year earlier — the most since last August and much higher than the market expectations.

Manufacturing production shrank 3.7 percent, led by drops in output of basic metals, coke and refined petroleum products, chemicals and chemical products, food products, pharmaceuticals, medicinal chemical and botanical products, machinery and equipment, and other non-metallic mineral products. Mining output was down by as much as 5.5 percent vs 2.5 percent decline in January, while electricity output edged 0.1 percent higher vs 5.5 percent growth in January. The income and supply shortfalls will further compress the economy.

While the government is most justifiably concerned about fighting the unusual daily surge of the virus, it can’t ignore the equally important concerns of the economy, especially on the price, production and employment fronts.

Maybe, NITI Aayog, the chief economic advisor attached to the union finance ministry and the Prime Minister’s Office should come together to devise quickly a composite programme to effectively address the key concerns of the economy. The issue is not about what comes first between the health of the country’s citizens and health of its economy. Both are equally important. They need to be addressed together with a strong compact plan.

(IPA Service. Views are personal)