The near 20 per cent annual increase in rural wages is building up price pressure on food articles such as cereals, rice and wheat, industry chamber Assocham has said.
This may pose a big challenge for the Reserve Bank of India with regard to interest rate cuts in its monetary policy review slated for Tuesday.
The chamber said “From 2010-11 onward, the nominal rural wages have risen close to 20 per cent per annum, exerting pressure on the prices of food articles.” This works both ways. The increase in the rural wages has raised demand for food articles, which led to the increase in the cost of production of food articles. “It is mainly a cost push which is fuelling the inflation of such crucial items,” the Associated Chambers of Commerce and Industry said in a paper on ‘Variables pushing food inflation’.
Besides rural wages, other raw material prices for producing food articles, such as fertiliser, diesel and transportation were rising. “In a way, we find ourselves in a high cost rural economy, which has a significant impact on the urban economy,” the chamber’s economic division said.
It said the collateral damage done by high food inflation was being felt on overall GDP growth in terms of high interest rates not allowing demand regeneration both in industrial products and services.
Assocham President, Rajkumar N. Dhoot, said while it was too early to say whether the country was in the grip of a stagflation – a situation of high inflation and low growth--some observations in this regard by economists were a matter of concern. “We need to act sooner than later,” he added.
He said one of the urgent steps that could be taken would be to ensure that prices of essential foodgrains such as rice, wheat and cereals do not shoot up any further. “It would make best of political and economic sense for the Government to intervene and make sure that adequate supply line is maintained. Even if imports have to be resorted to, the options should be considered seriously,” Dhoot said.