Audio podcast: How soaring government debt, inflation, fuel prices affect you

Podcast transcript

Hello and welcome to All Indians Matter.

Here’s what a badly planned lockdown and mismanaged economy can do to you.

A few days ago, India woke up to the news that government debt is likely to hit a record 91% of the GDP this fiscal – the highest on record since data began to be compiled in 1980. The report, by leading brokerage Motilal Oswal Financial Services, warned that unless private spending picks up strongly, growth will be impacted for a decade – averaging 5%-6% compared to 7% in the 2010s.

Why does this matter? How does this impact you – directly?

A lot more of our tax money will now be spent on servicing debt instead of schools, hospitals, roads and other badly-needed public works. With govt needing more money to service debt, it means taxes are unlikely to reduce and may even in the long term increase either directly or indirectly.

The economy is in dire need of a consumption boost but for that we need direct transfers to the needy and tax cuts. The last at least is unlikely now.

Businesses, large and small, need cheap credit to grow and create employment. With the government borrowing such large amounts, interest rates are likely to rise further, putting credit out of reach for that many more businesses. We can’t afford that at a time when unemployment is soaring and growth is plummeting.

But the bad news didn’t stop there. In what served as a pincer-like effect on the common man’s life, the sharp drop in the economy was accompanied by an equally sharp rise in food prices. In July, the consumer price index, a measure of the cost of living, rose to 6.93% while the June index was revised upwards to 6.23% from 6.09%. Tellingly, food items became nearly 10% costlier, according to data from the Ministry of Statistics and Programme Implementation.

The index measures what households pay for everyday items such as food, fuel, clothing, housing and electricity. The index has now increased for the fourth straight month, and is above the Reserve Bank’s acceptable limit of 4% with a tolerance limit of 2%. This means that inflation should be within 2% to 6% at all times. Maybe there was a whooshing sound as India flew past it.

Low inflation is important also because it helps to bring down interest rates to encourage borrowing by businesses in the hope of spurring growth and job creation.

So, what we have is high inflation and collapsing growth.

Abhishek Agrawal, an economist with Comtrade, a commodities trading firm, was quoted in the media as saying: “This is a stagflation-like situation, marked by increasing prices and dipping growth. It will thwart the central bank from lowering interest rates anytime soon.”

So, what emptied our pockets? Vegetable prices rose 11.29% in July from 4% in June. Inflation for fruits stood at 0.13% compared to a 0.3% rise in June, while the price of pulses rose a staggering 15.92% in July on the back of an even higher 17.6% in the previous month.

Apart from food, consumers paid more for transport because of fuel prices. Petrol rates have been rising steadily, and there was one phase when they rose on an almost daily basis. They are at nearly record highs – which contributes to higher prices of almost all goods, including food.

At the time of recording this podcast, petrol was selling in Mumbai at Rs 88.39 per litre while diesel was at over Rs 80. In some small towns and cities, petrol prices had crossed Rs 90. Don’t forget, petrol and diesel prices were raised for 20 consecutive days starting June 7.

But this isn’t even the most worrying news. Many expect further hikes.

Meanwhile, the coronavirus death toll continues to rise though the growth has declined steeply and recovery rates are rising.

So, where do we go from here? It’s pretty clear that the government is out of ideas. The other day, Finance Minister Nirmala Sitharaman seemed resigned to the situation, saying simply that COVID-19 was an act of God and seeming to imply that nothing could be done about the economy.

While it’s true that the government cannot be blamed for the virus, its response was weak and the result is before us.

Meanwhile, it’s propaganda machine continues to roll, dishing out pictures of Prime Minister Narendra Modi reading newspapers under a tree while half-read books and an open laptop await his attention. There were pictures too of him feeding peacocks and photographing ducks. It seems particularly insensitive, even silly, at a time of such difficulty.

Meanwhile, we’re told, sab changa si. Is it? If you’re among those who’ve lost their jobs or are struggling to make ends meet because of rising prices or finding it tough to run your business, I’d love to hear from you. Write to me at editor@allindiansmatter.in.

Thank you for listening. Please visit www.allindiansmatter.in for more columns, videos and audio podcasts. You can follow me on Twitter at @AshrafEngineer and @AllIndiansCount. Catch you again soon.