# Economic Survey 2017-18 Analysis: Prices and Inflation

Here, we have done analysis of prices and inflation given in the Economic Survey 2017-18. The information provided in this article will help IAS aspirants to prepare for the IAS Mains Exam 2018.

Created On: Jan 29, 2018 20:06 IST
Modified On: Jan 30, 2018 10:05 IST
Economic Survey 2017-18 Analysis Prices and Inflation

In the last four year, Indian economy is witnessing a gradual transition from a period of high and variable inflation to more stable prices. The Consumer Price Index (CPI) which measures the Headline inflation has remained under control for the fourth successive year. In the beginning of the Financial Year (FY) 2017-18, the rate of inflation was 3.0 per cent but due to a moderate increase in prices in the first two quarters of FY 2017-18 resulting into a low level of inflation of 2.2 per cent. The food inflation,  measured by the Consumer Food Price Index (CFPI) showing a declining trend to low of 1.2 per cent during the FY 2017-18 (April-December).

Probable Question for IAS Mains Exam:

Question: What are the efforts taken by the government to contain the inflation in the last five years? Critically analyse.

Based on the new series (2011-12) of Wholesale Price Index (WPI), the average inflation at 1.7 per cent in the financial year 2016-17 compared to the last two financial year- (-) 3.7 per cent in 2015-16 and 1.2 per cent in 2014-15.

While WPI based inflation for FY 2017-18 (Apr-Dec) stood at 2.9 per cent. Inflation based on the major series of the price indices for the last six years is given in Table 1 and the movement of WPI and CPI inflation since April 2014 is at Figure 1.

Fig: 2, General Inflation based on differed price indices (per cent)

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Current Trends in Inflation

In the financial year, 2016-17, the average CPI-combined (CPI-C) inflation declined to 4.5 per cent from 4.9 per cent in 2015-16 and 5.9 per cent in 2014-15.
Average inflation for FY 2017-18 (Apr-Dec) stood at 3.3 per cent, below the threshold of 4 per cent.

In the first half of the current fiscal year, there is a declining trend in inflation which indicative of a benign food inflation which ranged between (-)2.1 to 1.5 per cent.

The moderate inflation rate of less than 4 per cent was maintained for straight 12 months up to the end of October 2017 (Figure 1). The CPI-C inflation for the month of December 2017 stood at 5.2 per cent as compared to 4.9 per cent in November 2017 and 3.4 per cent in December 2016.

Current Trend in Food Inflation

The price monitoring initiative of the government on regular basis and the good agricultural production helped to control the food inflation.

The Consumer Food Price Index (CFPI) has declined to 4.2 per cent in 2016-17 from 4.9 per cent in 2015-16 and 6.4 per cent in 2014-15.

For the financial year 2017-18, the average food inflation declined to a low of 1.2 per cent which was at 5.0 per cent in December 2017.

The rise of food inflation in the last few months is just because of the rise in the prices of vegetables and fruits while the decline in food inflation is due to the driving prices of meat & fish, oil & fats, spices and pulses & products.

Pulses & products sub-group with a weight of 2.4 in CPI-C has recorded inflation of (-)22.1 per cent in FY 2017-18 (Apr-Dec) as compared to 16.2 per cent during the same period last year.

Vegetables accounting for 6.04 weight in overall CPI-C recorded inflation of 2.4 per cent during 2017-18 (Apr-Dec).

Food inflation based on WPI has also declined; it averaged 2.3 per cent in FY 2017-18 (Apr-Dec) as compared to 6.3 per cent in FY 2016-17 (Apr-Dec).

WPI of Food Articles and Food Products has also shown a decline in FY 2017-18 (Apr-Dec) over the corresponding period of the previous FY.

WPI Food inflation stood at 2.9 per cent in December 2017 as compared to 4.1 per cent in November 2017 and 3.6 per cent in December 2016.

Fig: 2, Inflation in Selected Groups of WPI – Base 2011-12 (per cent)

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State-wise Inflation

During the financial year 2017-18, many states have witnessed a sharp fall in CPI inflation i.e. total seventeen States have recorded below 4 per cent in FY 2017-18 (Apr-Dec) as compared to only three States in 2016-17 (Apr-Dec).

Five States, namely, Jammu & Kashmir, Kerala, Delhi, Tamil Nadu and Himachal Pradesh recorded inflation of more than 4 per cent in FY 2017-18 (Apr-Dec) whereas nineteen States had inflation of more than 4 per cent in FY 2016-17 (Apr-Dec).

Ten States had inflation rate lower than All India average for FY 2017-18 (Apr-Dec) with Odisha having the lowest inflation followed by Uttar Pradesh, Bihar and Chhattisgarh respectively.

In urban areas, fifteen States had inflation of less than 4 per cent in FY 2017-18 (Apr-Dec)  as compared to twelve in FY 2016-17 (Apr-Dec).

In the case of CPI-Rural, fifteen States recorded inflation of less than 4 per cent in FY 2017-18 (Apr-Dec) as against only one in 2016-17 (Apr-Dec).

Fig: 3, CPI (Combined) General Inflation for States (per cent)

Trends in Global Commodity Prices

According to the World Bank, currently, the prices of energy commodity are surging and it has recorded average global inflation of 15.3 per cent in FY 2017-18 (Apr-Dec) compared to (-) 8.0 per cent in FY 2016-17 (Apr-Dec).

Based on All India WPI, the movement of ‘Fuel & Power’ inflation is following the trend of World Bank Energy price index which is increasing at an average of 9.7 per cent in FY 2017-18 (Apr-Dec) compared to (-) 6.5 per cent in FY 2016-17 (Apr-Dec).

World Bank Food price index declined by 3.0 per cent in the financial year 2017-18 (Apr-Dec) but rose at 5.8 per cent during the corresponding period last year. In contrast, India’s FAO food prices have recorded higher inflation of 5.8 per cent in FY 2017-18 (Apr-Dec) compared to 3.2 per cent in FY 2016-17 (Apr-Dec).

India’s WPI ‘Basic Metals’ prices have also following the path of World Bank’s ‘Base Metals’ prices, though, inflation of ‘Basic Metals’ as per WPI is lower at 9.9 per cent than that of World Bank’s ‘Base Metals’ inflation of 23.7 per cent during FY 2017-18 (Apr-Dec).

Efforts of the Government to Contain Inflation

Monitoring of price situation has been done on a regular basis so that the Government can keep control over the inflation. The Government has also taken the series of an initiative to control the food inflation as follows:

1. When required, the government has issued advisories to the State Governments in order to keep a check on malpractices like hoarding & black marketing activities and also they have been directed to take action against the lawbreakers and effectively enforce the Essential Commodities Act, 1955 & the Prevention of Black-marketing and Maintenance of Supplies of Essential Commodities Act, 1980 for commodities in short supply.

2. The Central Government has taken organised a regular review meeting on price and availability situation is being held at the highest level including at the level of Committee of Secretaries, Inter-Ministerial Committee, Price Stabilization Fund Management Committee and other Departmental level review meetings.

3. In order to incentivise production and enhance the availability, higher MSP has been announced for food items which may help moderate prices.

4.  A scheme titled Price Stabilization Fund (PSF) is being implemented to control price volatility of agricultural commodities like pulses, onions, etc.

5. The government approved enhancement in buffer stock of pulses from 1.5 lakh MT to 20 Lakh MT to enable effective market intervention for moderation of retail prices. Accordingly, a dynamic buffer stock of pulses of up to 20 lakh tonnes has been built under the Price Stabilization Fund (PSF) Scheme through both domestic procurement as well as imports. Of this, 3.26 lakh MT has been released for market intervention and buffer management.

6. Pulses from the buffer are being provided to States/UTs for PDS distribution, Mid-day Meal scheme, etc. In addition, pulses from the buffer are being utilized to meet the requirement of pulses by Army and Central Para-military Forces. Recently, it has also been decided that all Ministries/Departments having schemes with a nutrition component or providing food/catering/hospitality services would utilize pulses from the Central buffer for their operations.

7. Export of edible oils was allowed only in branded consumer packs of up to 5 kg with a minimum export price of USD 900 per MT. With a view to incentivizing domestic production, this restriction has been removed on oil except for palm oil, mustard oil and sunflower oil.

8. The government has imposed stock holding limits on stockist/dealers of sugar till April 2018.

9. The government imposed 20% duty on export of sugar for promoting the availability and moderating price rise.

10. Permitted import of 5 lakh tonnes of raw sugar at zero duty; subsequently, import of additional 3 lakh tonnes was allowed at 25% duty.

11. Export of all varieties of onion will be allowed only on the letter of credit subject to a minimum export price (MEP) of \$ 850 per MT till 31st December 2017.

12. States/UTs have been advised to impose a stock limit on onions. States were requested to indicate their requirement of onions so that import of required quantity may be undertaken to improve availability and help moderate the prevailing high prices.

Conclusion

For the major commodity groups, CPI inflation has declined to 3.3 percent during the financial year 2017-18 but there is no respite in the prices of the commodities like Housing and Fuel & Light which is going to affect the savings of most of the households in the future. The decline in inflation has been witnessed due to the fall in the prices of meat & fish, and other food items which are not a food of common man. However, in few States such as Odisha, Uttar Pradesh, Bihar and Chhattisgarh, the inflation had been recorded below the national average due to the lower level of household incomes and savings. Hence, it is wrong to conclude that the low level of inflation reflects the true picture of the household conditions. It is high time; the government should focus on improving the level of household demand in those low-income States.

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