inflation poses new challenges

 

·         Food inflation remaind most of time abv 10% last year

·         Poor spend 67% household income on food.

·         Hence the poor and vulnerable are going to be impacted by high inflation more than other sections of society

·         Although percapita income has grown by 7%, it has not improved much for the lower quintile

CAUSES FOR INFLATION ACC TO ECO SURVEY

·         Prosperous people

o   With increased per capita income, people can now afford to shift their diet from cheaper coarse cereals to protein rich diet of milk, eggs etc

·         Financial inclusion

o   The earlier idle money stored in house alimirahs is now being brought into banks

o   These banks inturn lend to market, leadning to more liquidity and hence stoking inflation

·         PPP correction

o   When a nation is poor, its Purchasing power parity is low. Hence people in country like zimbabwe can buy more with 100 US $ than a person in US or India

o   In same way as India pushes itself up the development ladder, its PPP is going to decrease and hence increasing cost of goods

WAY AHEAD

·         ECO survey estimates an average inflation of 5% over next decade

·         A high growth India will have to live with high inflation

·         Only way to reduce the discomfort  for poor is to ensure growth is more inclusive

·         We need better social safety nets for the poor