Rising prices of food items, besides petroleum products and commodities, have burnt a hole in the pocket of the Indian consumer during the last three years.
The galloping inflation pushed consumer expenditure by Rs 3,76,000 crore in 2010-11—more than an eightfold rise over an additional expenditure of Rs 45,000 crore in 2008-09, according to Crisil Research. The poor and vulnerable households bore the brunt of high food prices, it said.
The growth in private consumption expenditure, in nominal terms rose to nearly 17 per cent annually between 2008-09 and 2010-11, against 14 per cent in the preceding three years (2005-06 to 2007-08), primarily due to food inflation.
“The rise in inflation to eight per cent per year during FY09 to FY11 from five per cent in the preceding three years eroded the purchasing power of money and inflated the consumption expenditure bill of Indian households by Rs 5,80,000 crore,” said D Joshi, chief economist at Crisil.
The inflation was, however, not uniform—food items saw a sharper price increase, compared to non-food items. Food inflation stood at 11.6 per cent during 2008-09 to 2010-11, compared to non-food inflation at 5.7 per cent.
In the non-food category, prices of many items declined. The fall in prices was more evident in the durables category, including television sets, washing machines and air conditioners.
Crisil said contrary to the general perception, prices of several commodities declined even during periods of high inflation. “Prices of many consumer durables have declined in the last few years. If adjusted for improvement in the quality of goods, the decline would be even sharper.”
Consumers immediately feel the impact of rising inflation in food articles because these items are purchased on a daily basis. Durables are not purchased frequently and hence, a fall in their prices tends to be overlooked while forming inflation expectations, said Vidya Mahambare, a senior economist at Crisil.
Price trends of commodities in the Wholesale Price Index favour the middle- and high-income classes, rather than the poor and vulnerable Indian households, who spend a large part of their income on food.
The middle- and high-income groups benefit more from falling prices of non-food manufactured items, particularly durable goods, as they have higher disposable income to spend on other goods and services, including consumer durables and for savings.
“The poor, with limited discretionary income to spend on consumer durables, do not benefit much from the lower prices. In contrast, rising prices of food items strain their discretionary spending,” the report said.
Higher food prices should be an incentive to enhance the production of food items, but this has not happened so far. In addition to price signals, productivity improvement in food/agriculture categories would require better technology and improved investments in irrigation. In the absence of these measures, high food inflation is here to stay, the report added.
