The GOP problem

by January 15, 2020 0 comments

Rising vegetable prices have driven consumer inflation to new highs. Get agricultural management back on track

The dramatic increase in vegetable prices this winter, particularly of core products such as garlic, onions and potatoes (GOP), is finally reflecting on inflation statistics. The Government’s own data, released by the National Statistical Office (NSO), has confirmed our worst fears of not just a slowdown but a guttural halt as retail inflation rose by 7.35 per cent last December, which is the highest since July 2014. This can be attributed to a significant rise in food prices, which saw a marked rise from 10.01 per cent in November to 14.12 per cent in December last year. This points to various problems for the Government and the Reserve Bank of India (RBI). The latter has little wiggle room for rate cuts and can do little to spur economic activity. This is actually the first time that the relatively new Monetary Policy Committee (MPC), that adjusts interest rates, will face such a challenge. Until now, the MPC has moved them downward in an effort to boost the economy. Already, banks are desperately trying to repair their loan books that are crippled by non-performing assets (NPAs) and consumers are not biting for real estate loans. Increasing rates to control inflation and spending will only drive consumer spending further downwards, putting the economy under even more pressure. But there is also that other issue of produce management. Over the past few years, the Government has for the large part stabilised food prices with smart management of produce ever since it got burnt by rising pulse prices a few years ago. But this year, the price of onion has seemed to belie expectations. There has been a four-fold increase in the rate of this staple food since June last. This, coupled with an equal rise in garlic and potatoes and other vegetables, has seemingly caught everyone — from everyday consumers to the Government — completely off the guard.

But the GOP problem, as we have termed the situation, is making a “bad” scenario even “worse.” With the economy in the doldrums, job creation at multi-year lows and consumer demand collapsing, the Government finds itself on a sticky wicket. While crop and produce management can be better managed in the coming seasons — the winter of 2019-2020 can be seen as an aberration — getting demand to pick up again is a challenge, particularly with the Government’s ability for limited spending. The Narendra Modi-led Government has ambitious social welfare schemes and they have cost money. Until the economy gets going again, the funds to keep such spending going will also be constrained. The Budget is on its way in a few weeks time. While bureaucrats in the Finance Ministry are working overtime, can the Government really afford an income tax rate cut, as many believe? There is a significant amount of anger in the general population, one that has manifested itself in the anti-Citizenship Amendment Act (CAA) protests, which have for the large part been contained. But the Government and its advisors must be acutely aware that things are on a knife-edge. Pretending that everything is normal will not help. It will be of help if the Government seeks the advice of in-house experts on prevailing matters to get going. For now, it has to manage produce prices and understand that while spud prices may not bring the people on the streets today, tomorrow tomato prices or something else just might.

(Courtesy: The Pioneer)

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