Even after seeing the growth rate of 13 and a half percent in the first quarter of the current financial year, it is a bit risky to say that the country’s economy is in deep trouble. But the reality is that the country’s economy is passing through a very difficult period. Inflation is not coming under the control of the government. Unemployment is increasing continuously. As the current account deficit is widening, the foreign exchange reserves are getting depleted to handle the rising import bill and the falling rupee. Still the rupee is falling. A new food crisis has arisen in front of the country, due to which the government has to control exports. By the time the government goes to handle one, it becomes difficult on the other front. The government is avoiding questions by repeatedly talking about the strengthening of the foundation of the economy and is waiting for a miracle to happen if the crisis is averted. But no miracle seems to be happening.
The new inflation figure is going to add to the difficulties of the government. There was a trend of falling retail inflation for three months between May and July, due to which it seemed that if this trend continues, it will be easier for the government to achieve the target set in the budget. The government aims to keep the inflation rate at 6.7 per cent for the whole year. But in August the trend of inflation changed. Retail inflation based on the Consumer Price Index rose to 7 per cent. The Reserve Bank has considered 6 per cent as a convenient limit for inflation. But the inflation rate in India has been above this comfortable limit for the last eight months. To control this, the Reserve Bank has increased the interest rates three times. After three hikes, the repo rate has gone up to 5.40 per cent. It has reached the level before the start of Corona in 2019. The direct effect of increasing the repo rate is that the growth rate gets affected. If the government tries to contain inflation, then the growth rate will fall and if it thinks of increasing the growth rate, then inflation will be uncontrollable. It is a kind of vicious circle in which the government is entangled.
The National Statistics Office has said that inflation is increasing due to two reasons. One reason is the increase in the prices of food items and the other reason is the increase in the prices of petroleum products. If the government wants, both these reasons can be removed to some extent. The government can immediately reduce the prices of petrol, diesel and cooking gas. There has been a big fall in the price of crude oil in the international market. Crude oil had reached $ 116 per barrel in the month of June, which came down to $ 88 per barrel on September 8. There has been a decline of $ 28 on a barrel but no benefit has been passed on to the consumers. The argument is being made to compensate the losses of petroleum companies, which is baseless. If the government wants, it can give immediate relief.
Similarly, the government can control the rising inflation in the prices of food items to some extent. He has taken an initiative in this direction. After wheat and flour, the government has now banned the export of rice. The export of crumbled rice has been stopped and a duty of 20 per cent has been imposed on the export of some other varieties of rice. Its effect will be visible in the next one or two months. The main concern of the government should be pulses, whose inflation rate is very high and due to this the consumption of pulses is coming down. Inflation of vegetables is seasonal, which is expected to recover soon. Actually this is a big failure of the government, which it did not have proper knowledge about crops. In April, the Prime Minister had said that India can feed the world. He had said that by the grace of Mother Annapurna, India’s foodgrain stock is full. But it was not really like that then. In March, due to sudden increase in heat, the Rabi crop was spoiled and the government’s wheat procurement was reduced to half of the previous year. Later, in many states including Uttar Pradesh, Bihar, Jharkhand, if the rains were not good, then the paddy crop got spoiled. A new virus was attacked in Punjab, due to which the plants did not grow, remained dwarf, this also caused damage to the paddy crop. Then the government hurriedly decided to stop exports. This shows that the government’s policies are not long term, its market intelligence system is not good and the yield forecast is also very poor.
However, by stopping exports, the prices of food grains will come under control and the prices of vegetables will also come down soon. Despite this, it is believed that inflation will be above the Reserve Bank’s limit even in the figure for September next month. Taking cognizance of the inflation rate being above the Reserve Bank’s convenient limit for three consecutive quarters, it will not be surprising if the central bank again increases the interest rate. But it will have an impact on the growth rate. If the growth rate falls in every sector, then there will be a big crisis of employment in front of the government. According to the August employment figures released by the Center for Monitoring Indian Economy (CMIE), the unemployment rate has gone up to 8.28 percent. Urban unemployment in the country is 9.57 percent and rural unemployment is 7.68 percent. This is the highest since August last year. The unemployment rate in Haryana, Jammu and Kashmir and Rajasthan has exceeded 30 percent. To increase employment, it is necessary to accelerate the growth rate. But the difficulty of the government is whether it should stop inflation or increase the growth rate!
On the other hand, India’s foreign exchange reserves are depleting rapidly. India’s foreign exchange reserves have come down to $553 billion from $632 billion. There has been a decrease of about $80 billion. Last week alone, the foreign exchange reserves fell by about $ eight billion. India’s trade deficit widened to $69 billion in the first quarter of the current financial year, when the 13-and-a-half percent growth rate was stung. This is about $15 billion more than the January-March quarter. During this period, India exported a total of $121 billion and imported $190 billion. Thus there was a trade deficit of $69 billion. This is a huge burden on the foreign exchange reserves. There is not enough foreign investment in India and FIIs are withdrawing money from the stock market. To handle the falling price of rupee from above, the Reserve Bank has to withdraw dollars in the market. The combined effect of all this is that foreign exchange reserves are depleting. In this way, inflation and unemployment are increasing in the country. Grain warehouses are getting empty and foreign exchange reserves are also getting depleted.
