GoI should have announced a minimum support price and a new stocking policy to tackle inflation

India's wholesale price index (WPI) rate rose to 14.23%, a 12-year high, in November 2021, remaining above double digits for the past eight months. Such rise has been reflected in the ordinary Indian's life and affected consumer choice, from what to eat, wear, purchase or where to travel. For many, it has been a push back into a brutish life, from which they had emerged only recently. 

 For the ordinary farmer, it makes an untenable situation even worse. If he wishes to farm, he is faced with a significant shortage of fertilisers, with black market prices for a 45 kg pack of di-ammonium phosphate (DAP) reaching about ₹1,500 (vs the maximum retail price of ₹1,200) in late November. A simple choice of utilising fertilisers to improve his yield has become a challenge for him. Should he consider branching into animal husbandry, the challenge is worse. 

Chicken feed itself now costs as much as premium branded atta, making the economics of chicken farming untenable. Meanwhile, what to cook has become an act of self-limitation. On groceries, inflation has been significant. For wheat, the WPI inflation rate was 10.14% between November 2020 and November 2021, while for fruit it was about 15.50%. The act of buying staple vegetables can now stretch a kitchen budget. In Thiruvananthapuram, Kerala, the wholesale market rate for tomatoes was ₹60 per kg, reaching about ₹90-120 a kg in retail shops. 

 In other states, retail prices for tomatoes have shot up over ₹100 per kg. Even ordinary restaurants are now swerving away from tomato-specific items on their menu. Meanwhile, prices for vegetables as varied as bhindi, beetroot, cucumber and beans have hovered above the ₹100 a kg mark. Making sambhar has never been more expensive for the ordinary Indian. 

 In an ideal world, GoI would have announced a minimum support price (MSP) and a new public stocking policy, focused on vegetables, pulses and edible oils, to help manage unseasonal price hikes. Instead, citizens find it cheaper to buy a pint of beer in Goa than buy a kilo of tomatoes. There are harder choices, when one consider kitchen staples. 

Cooking oil prices continue to be elevated, rising above ₹200 a litre for the most of 2021, given a sharp increase in international rates. India continues to pay significantly for such imports (which rose above 63% to ₹1.17 lakh crore in 2020-21, with palm oil imports rising to 63% of total tonnage), despite frequent changes in import duties. 

 Oil's Hot-Pressed Prices It is often forgotten that India was one of the major exporters of edible oil till the 1970s. In the near term, as some states such as Uttar Pradesh have done, vegetable oils can be distributed free of cost to those below the poverty line. Over the long term, India needs to tweak its incentives like MSP for growing edible oil crops (vs staple crops like wheat and rice). India can increase its domestic production of edible oil by an estimated 3.6 million tonnes - about 27% of current imports by volume - by simply improving existing yields through better agricultural inputs, quality seeds and better management. Meanwhile, the current acreage under oilseeds can also be increased further, while pursuing alternatives like rice bran oil (about 2 million tonnes potential, about 15% of imports by volume), cotton seed oil (about 1.4 million tonnes can be produced using the current cotton acreage itself) and palm oil (for which there is a potential 1.9 million hectares of acreage available). Meanwhile, most Indians continue to buy smaller bottles of edible oil, substituting the standard 1 litre bottle, for an affordable 500 ml pack. 

 Even discretionary purchases have been hard hit. Paint companies raised prices by about 18% year-on-year this year, while FMCG firms raised their prices by 710% year-on-year. Even sarees are more expensive now. Saree price inflation was about 8% in November 2021, the highest since 2015, while footwear inflation was at 7.9% in the same period. 

An act of buying an extra piece of cloth is difficult now. For the typical entrepreneur, it is difficult to turn a profit or even pay salaries now. Over the past year, fuel and power prices have risen by about 39.81% between November 2020 and November 2021, along with manufactured items prices rising 11.92% during the same period. 

Such a rise in raw inflation has come as a shock for most small and micro-sized firms, leading to higher input costs. Raw material prices for firms in the paint or FMCG industry are at a 40-year high, while being hit by rupee depreciation. The near-term also looks grim. Forecasts for WPI inflation till March 2022 are about 11.5-12% for the current fiscal year. As a consequence, many small firms are simply shutting shop, with about 14% of all small consumer goods brands exiting the market by September 2021. 

 Big Help for Small Business Such firms need more support. About 50% of around 150 MSMEs surveyed recently highlighted that government schemes and incentives were insufficient to sustain them through the Covid pandemic. About 43% of MSMEs surveyed have had to change their business model to survive. In the near term, the Emergency Credit Line Guarantee Scheme (ECLGS) can be extended till 2022-23, with a potential increase in the corpus fund and a relaxation in the qualification criteria to enhance coverage to ancillary vendors. All this does not bode well for Indians and the Indian economy. For the average Indian, this is a time of discontentment. Policymakers must take heed. ",