Along an alleyway in an area of Mumbai lined with winery stalls and vegetable carts, visitors usually have to avoid commuters, motorcycles, and even animals for shopping. But now, like so many streets in India, the calm is disturbing.
Vijay Kotian, a 35-year-old man selling vegetables, fruits and pulses from his perch by the side of the road, was confronted with a paradox. There were fewer buyers for his rate, but the prices were higher.
“Customers get angry because prices go up from Rs20 to Rs40 to Rs50 [$0.20-$0.68]He said, citing tomatoes as an example. “They ask me why I am increasing my prices. But it’s not me.
Mr Kotian’s predicament sums up a challenge for India since the coronavirus pandemic struck in March: stubbornly high inflation despite a huge economic contraction.
Retail inflation remained above the Reserve Bank of India’s target of 6 percent for eight months from April, shortly after the country entered a multi-month lockdown . It hit a six-year high of 7.6% in October.
The consumer price index finally fell within the RBI target at 4.6% in December, thanks in part to lower vegetable prices, offering a bit of breathing space for low-income shoppers struggling to fill shopping bags and politicians fearing popular outrage.
But economists have warned that India, which has struggled for years against soaring price hikes, must strike a balance between the urgent need to revive growth and keep food, transport and commodity prices low. under control.
“The key question that accompanies inflation is: is it a return to the dark ages or is it dark clouds passing?” said Aurodeep Nandi, economist at Nomura.
While he did not think it was the first, Mr. Nandi warned that “there are still dark clouds looming”.
High inflation has long been a source of concern to Indian authorities, as demand from the rapidly expanding economy and population have exacerbated the shortages of goods. After years of mixed responses, the central bank adopted an inflation targeting mandate in 2016 to try and manage the imbalance.
Anger high onion prices has been linked to the fall of more than one government. In September, Narendra Modi’s government banned onion exports amid concerns over soaring prices.
The decline in food inflation in December partly reflected the catching up of supply chains which were overthrown by India’s strict lockdown, which limited the availability of transport and labor.
But other measures of inflation have shown signs of pre-pandemic pressure, recovering after several years of relatively moderate price increases. Core inflation, which excludes food and fuel, remained stubbornly high last month at 5.6%, down from 5.8% in November, according to brokerage Edelweiss.
This continued even after the growth stalled. According to the IMF, the Indian economy is expected to shrink by more than 10% during the year ended in March. The country has registered more than 10 million cases of coronavirus, the second highest tally in the world, and more than 150,000 deaths.
Inflation anxiety has kept the Reserve Bank of India reduce interest rates since May, and many economists expect it to continue to hold in the coming months – in part due to the acceleration in commodity prices.
The economy has shown signs of improvement from its lows a year ago, with a pickup in indicators such as manufacturing, rail traffic and tractor sales.
But Shumita Deveshwar, an economist at consultancy firm TS Lombard, said inflation could complicate the recovery in India.
Lukewarm private investment, which has tended to decline since 2018, has exacerbated the country’s chronic supply-side shortages, such as the infrastructure needed to get vegetables from farms to stores. This translates into large price hikes that fuel inflation, she said.
“This is an age-old problem for India,” Ms. Deveshwar said. “As growth recovers and demand begins to recover, we will see demand lagging behind supply, which is essentially recreating the conditions” for inflation.
Recent agricultural reforms introduced by Modi aimed at allowing farmers to sell directly to private buyers rather than to state-backed market yards could streamline supply chains and reduce some of these inflationary inefficiencies.
“Yes [the reform] is managed as it should, I think we would be in a much better behaved food inflation, ”said Radhika Rao, economist at DBS.
The laws in issue, however, were suspended by the Supreme Court following the reaction of farmers.
Inflation in other areas continues to be a problem. Many automakers, such as India’s largest Maruti Suzuki, have increased vehicle prices this month due, in part, to high raw material prices.
A survey of manufacturers by IHS Markit in December found that inflation in the costs of inputs, such as materials and labor, had reached its highest level in two years.
All the while, India’s economic recovery remains timid. Industrial production in November fell 1.9 percent, according to data released this month.
Even as Covid-19 infections have fallen from nearly 100,000 a day in September to less than 20,000, some economists fear that a resurgence of cases could hamper the recovery.
For Vinod Prasad, a 57-year-old salesman selling towels in Mumbai, inflation remains an issue, with prices around 20% higher than before the lockdown.
And there were few signs of an economic recovery. One recent evening, he had not yet made a single sale for the day. “Nobody is coming,” he said.
Additional reporting by Andrea Rodrigues