Economic Stability
By Shivaji Sarkar
Prices remain a major concern of the RBI monetary policy amid rising global trade protectionism. The Central bank apprehends that financial market volatility could derail the ongoing global recovery. It was not a unanimous decision to keep interest rates unchanged. At least one member Dr Michael Patra voted for a 0.25 per cent increase considering the unstable situation.
Nevertheless, the decision to maintain the rates has helped the stock market rally after a continuous fall for many weeks. This is an important cue for the policy makers to work for maintaining the prices or lowering it wherever possible.
The RBI largely depends on the figures given by the Central Statistics Office (CSO). Its February 28 retail figures show a rise of 4.44 per cent against 5.05 per cent in January. The December 2017 food figures were the highest in 17 months. The moderation in January 2018 to 3.65 per cent or February to 3.26 per cent was higher than 2.01 per cent a year ago.
The moderation is ascribed to seasonal factors as prices are observed to be lowest in the winters. But the RBI is concerned that higher prices this winter may be an indicator for spurt in prices in later months.
It means the new goods and services tax (GST) has not been able to reduce prices. Other factors that may have influenced prices are the rising fuel prices, highway tolls — raised by another five per cent from April 1, municipal and panchayat tolls, transportation cost, imposition of profession tax in some states, rising rail, bus and other travel costs.
The GST implementation had an adverse effect, according to RBI, on urban consumption through loss of output and employment in the labour-intensive unorganised sector. Net exports dragged down aggregate demand in 2017-18 due to a surge in imports and deceleration in exports in Q3, the latter being driven in part by GST related working capital disruptions, says RBI.
Even the move to raise parking charges or congestion tax hits the prices of commodities. It is an irrational approach. The common man becomes a prey to falsified arguments that since affluent Singapore does it India also needs to do it. Putting such curbs on business has its draconian impact. It helps only the parking mafia, who amassed immense wealth in cities like Delhi by charging vehicles at high rates without solving the problem. The further move to raise it on the plea that land is scarce in such areas puts citizens at disadvantage. It makes the rich mafia richer.
Interestingly, the argument that it increases revenue of civic bodies is incorrect. The civic bodies do not get more than one-third of what the toll or parking mafia collect. Even the National Highway Authority of India (NHAI) gets that much.
The toll on entry of passenger taxis to Delhi or States of Haryana and others is a fallacy. The Constitution guarantees free movement of citizens. But the toll is transferred to the travelling citizen and the commercial vehicle does not pay a penny. It also adds to prices and consequent slowing down of the economy. Such tolls levied on vehicles carrying farm goods increase the retail prices for two reasons — high toll tax and loss of fuel.
India is a classic example of either static per capita income, or a falling one. India witnesses a slower growth of 8.3 per cent at Rs 1,11,782 in 2017-18. In 2016-17, per capita income of Indians had grown by 9.7 per cent to Rs 1,03,219.
The highway tolls and their continuous spurt are also a dampener on the movement of goods and promotion of tourism. India is poised to have Rs 32 lakh crore tourism industry by 2028 but it has also witnessed some fall in individual highway travelling as tolls are considered atrocious. Even many State governments find the expenses of their state road transport corporation buses have increased owing to such tolls.
The daily rising fuel prices are also hitting the budget not only of the common man and farmers but the large industries as well. It has a debilitating impact on the industry. Whatever little growth is witnessed in the capital goods and consumer goods may come to a thaw if retail fuel prices remain at the world’s highest due to irrational price structuring and high Central and State taxes.
Data for the past four years shows both Centre and States make large sums from petroleum products. For instance, in 2013-14, the Centre collected Rs 1.1 lakh crore as taxes from petroleum of which Rs 0.8 lakh crore was spent in payouts including subsidies. This gain increased to Rs 2.5 lakh crore in 2016-17.
The Government efforts for ‘Make in India’ have led to increase in prices by unscrupulous Indian traders on many items. Spectacle sellers have increased prices of sub-standard goods as imports of South Korean ready-made spectacles have reduced. Pharmaceutical makers have not complied with government diktats to reduce medicine prices.
The unstable situation is further stressed by increase in gold imports. The RBI says that external demand remains a weak link. Merchandise import growth has slowed because of gold imports; simultaneously export growth has also weakened. It is an indicator of further deterioration of balance of trade. Despite the forex reserves at high of $ 424 billion, if trade situation does not improve it can cause its erosion.
Another RBI concern is that the Government expenditure largely is providing sustained support to aggregate demand. While the Government should be appreciated, this cannot be a long-term solution. A sustained such effort leads to capacity building. But a long-term such approach can have its impact on fiscal deficit. A higher deficit can again be inflationary.
Indian companies are making government efforts at maintaining prices difficult. The highway construction, toll gates, various other levies, high road and medical insurance and lower benefits increase their profits but when it comes to adhere to Government regulations they take devious means.
The Government has to ponder seriously on ways to keep prices in check, as lack of it hits the Government itself the most and has perilous effect on the economy. The Government services that fetch fees or tolls also benefit the private players more. Practically and politically it is important for the Government to show its concern effectively on the price front.—INFA