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Posted at: Nov 15, 2017, 12:33 AM; last updated: Nov 15, 2017, 12:33 AM (IST)

Tears of onion

Inflation concerns add to political woes
Tears of onion
Food and vegetable prices have soared. Onions and tomatoes, two staples, are beyond the reach of the poor. Onion prices soared sharply, while rates of several vegetables, particularly tomatoes, have remained firm since June. According to official data, consumer inflation touched a seven-month high in October while wholesale inflation was at a six-month high because of rising food and fuel prices. This is not good news for either the people or the politicians with a high-stake electoral battle in Gujarat around the corner.

 The raging inflation is also a cause of concern for managers of India's battered economy that has been struggling to recover from the twin disruptions — demonetisation and hasty implementation of GST. The currency crunch hit the informal economy hard, slowing growth to a three-year low in the June quarter. Recent industrial production statistics again, are not very encouraging and suggest that the recovery is still away as factory output growth slowed in September mainly because of the infirmities in GST. Besides regulatory hassles and compliance costs, frequent changes in its rates and regulations have sowed uncertainty among the investors. There has been some hope that the RBI might cut policy rates next month as that would help banks reduce the interest rates for consumers and investors. But, rising inflation has belied that expectation. The RBI, which would like inflation to remain under 4 per cent, is unlikely to announce any immediate rate cut.  

More difficult days are ahead for the North Block mandarins as India is fast losing the cushion of cheaper crude oil prices. Geopolitical disturbances in the Gulf region combined with an output squeeze by OPEC have resulted in a spike in international oil prices. India’s crude oil import has already become $10-15 per barrel costlier compared to 2015. As the government is not in a position to further raise petrol and diesel prices, it would be forced to miss the fiscal deficit target to borrow more. In this situation, FM Jaitley should abandon the policy of GST reform in instalments and focus on creating a stable and investor-friendly taxation regime soon.


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