Household bill shoots up by Rs 5.8 lakh crore on rising inflation

MUMBAI: Rising inflation has resulted in an additional consumption cost burden of Rs 5.8 lakh crore to the Indian households from 2008-09 to 2010-11, according to a report by ratings firm Crisil. Inflation rose to 8% per year from 2008-09 to 2010-11 from 5% in the preceding three years. This has eroded the purchasing power of money and inflated the consumption expenditure bill of Indian households by Rs 5.8 lakh crore.

The study concluded that price trends of commodities in the wholesale price index favour the middle and higher income classes, rather than poor and vulnerable Indian households who spend a large part of their income on food.

"The middle and high income groups benefit more from falling prices of non-food manufactured items, particularly durable goods, as they have higher disposable income to spend on other goods and services, including consumer durables and for savings. The poor, with limited discretionary income to spend on consumer durables, do not benefit much from their lower prices. In contrast, rising prices of food items strain their discretionary spending," adds Mr Joshi.

Higher food prices should be an incentive to enhance production of food items, but this has not happened so far. In addition to price signals, productivity improvement in food/agriculture categories would require better technology and improved investments in irrigation. In the absence of these measures, high food inflation is here to stay.

There was an element of surprise in the manner in which inflation panned out during the year, given that each of RBI's year-end inflation projections missed the mark. Even though the central bank revised its March 2011 inflation target upwards from 5.5% to 7.0% in January 2011, and further to 8% in March 2011, actual inflation for March was still way above at 9.8%. Headline inflation for 2010-11 averaged at 9.6% against a subdued 3.8% in the last fiscal.