Our battle of inflation, unemployment and inequality

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Our battle of inflation, unemployment and inequality

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• The story: India's labour force participation rate (LFPR) fell to just 40% in April 2021, the lowest since March 2020. The unemployment rate is at 8% now. (as per the CMIE surveys)
• Another report: The 'State of Working India 2021' report (Azim Premji University) shows that 23 crore Indians have fallen below daily incomes of Rs.375, India's minimum wage. Poverty ratio has risen by 15% in rural, and 20% in urban areas (March to Oct 2020). It means that Indian households in bottom decile lost two months of income!
• Second wave: The strong Covid second wave will only worsen things from here on. Both poverty and inequality are rising in parallel. 

1. The stock markets are making those holding financial assets richer by the day, due to a global liquidity flush
2. Indian consumption and investment growth are slow, ad IIP growth over 2 years is actually negative (so volume wise production levels aren’t even upto 2019 levels)
3. Enter inflation. The WPI inflation for April was more than 10%. Of this, fuel was 20%. The retail prices at pumps would remain high, hence. Manufactured products inflation is at 9%. 

• Commodity price problem: The WPI rise is also due to sharp rise in steel, iron ore, cement, chemicals prices. This price rise is due to optimism from vaccination and growth happening in China and the US. The large infra building plan of US is heating up the economy, and inflation is at 4.2%. World trade is rising (containers running short, freight rates rising).
• Food prices: Rising prices are pushing the food price index, which is up 31% in one year. 
• India story: So producers of India are facing higher input costs (due to rising WPI). They may pass it on to consumers now. If monsoon goes well in 2021, then good food output may moderate prices. So CPI will be down. Urban consumers would cheer. But farmers and rural producers will cry.

1. ruits and vegetable prices may crash (as seen in May, in Haryana, with tomato farmers, who destroyed the crop then). 
2. The price insurance or MSP is actually not offering help, beyond wheat and rice.

• What India faces: So on one hand there is the second wave of Covid, and on the other, there's higher inflation, unemployment and inequality. Incomes are dropping for most households. The MSMEs aren't doing well. Perhaps many more RBI measures are now needed.
• Offer cash support: A support of upto Rs.5000 per month to all covered by PDS (public distribution system) is advisable for upto 3 months. PDS must also offer higher grain coverage, like in 2020.
• Summary: The income and livelihood crisis of India may become a food crisis. For now, resolving the health crisis is the goal. Do it quick.

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