The Associated Chambers of Commerce and Industry of India said that the year 2012 might witness high inflationary pressures, even likely to touch 8% level by the next fiscal and continue troubling the common man.
While releasing the ASSOCHAM paper, Mr DS Rawat secretary general of ASSOCHAM said the long term supply side constraints, coupled with higher level of domestic demand pressure and hardening of fuel prices in the external markets will not allow the inflation to soften in the near future.
The ASSOCHAM assessment further stated that the current food inflation has gone down to 0.4% and shown the declining trends as well. Recent experiences show that grain prices fall immediately after harvest but start peaking in the post harvest seasons when the market supplies become scarce. It shows the shortage of proper storage and other infrastructure facilities for farm products. These infrastructure bottlenecks cause the price volatility.
Contrary to food articles, the mineral prices are still rising reflecting their overall supply shortage in the country. As a result, country is increasingly importing minerals from global market at prevailing higher price levels is significantly contributing to overall inflation.
The chamber believes that high level of inflation in 2012 may continue giving pain to the government on the issues related to food inflation as well as it also put pressure on industry largely due to hyper inflation in manufacturing products.
Mr Rawat further said that the current inflation needs to be seen from two angles: one, there is a shift in income brackets with the growth of the middle class as a result of industrialization and growth of services raising demand pressure. And two, the gap between producer prices and consumer prices is widening with retailing at consumer level a highly profitable job as demand pressure increases.
These inflation figures indicate the role of both domestic and external factors. Prices of fuel and primary products have substantial external and policy influences. Manufacturing inflation reflects the domestic private sector influenced by the exchange rate and global inflationary conditions.
In the year of 2010-11, higher prices of primary articles especially the rise in prices of food and non food articles, indirectly also affected the production by first pushing up the cost of living, which makes labour to ask for wage hikes and higher wage costs, eventually resulted in soaring cost of production.
As for the fuel inflation, it has also registered 13.4% in the first eight months of the current fiscal as against a lower growth in the corresponding period of the previous year. Thus, if we consider manufacturing as the process of transforming primary articles into finished products by working on them with the help of labor and machines that work on fuel, all the three major operating costs of manufacturing sector viz., raw material cost, labor and fuel costs have all increased owing to persistence of higher inflation rates.
According to ASSOCHAM, presently there exists a huge gap between the prices received by the producer and the price paid by the consumer. This gap needs to be filled by creating transport and storage infrastructure to the required extent. Also, the government needs to regulate the functioning of the agriculture markets.
The chamber paper also found that a long chain of intermediator’s benefit from the gap between the prices the farmer gets and the prices that consumer pays. Besides these, intermediators have no role in the supporting the farmer with required inputs or giving them timely and useful market information.
Mr Rawat further said that if the logistics and storage side is not addressed adequately by the Government at the centre and the states, the food inflation will continue to rise even may touch again to very alarming rate. He also said that the major drawback of the country’s inflation control strategy is that it always considers inflation as a seasonal and temporary problem.
