Finance Minister’s Lok Sabha speech on economy aimed at diverting attention from real issues

In response to the demand for an honest and meaningful debate on price rise and inflation by the opposition, the Parliament on Monday saw a discussion – much-delayed and resisted by the government – take place in the Lok Sabha.

Finance Minister Nirmala Sitharaman in a political speech spoke of India’s emergence as the fastest growing economy amid the pandemic, belting out GST collection numbers for July (which were released the same morning), and drew comparisons to UPA’s time of 2012-13, turning the discussion into what critics thought appeared more of a tactic to divert from real issues.

Over two years since the pandemic-induced lockdown, India’s economy is still sputtering, with the revival being uneven and slow. But though the situation continues to be grim for 90% of the population, pro-government economists and economic advisors have put up a brave face and have been seeing ‘green shoots’ for over a year.

This was reflected in the government’s line during the Lok Sabha debate as it indulged in the ‘politics of managing’ by resorting to self-praise and self-adulation.

“Though the government tried to portray India’s emergence as the fastest growing economy amid the pandemic, what appeared to have been easily forgotten was that the economy was on a decline even before COVID struck. Savings, investment, production, consumption and employment were already down before 2020,” an economist, who disapproves of the government’s approach, said.

Congress MP from Punjab Manish Tewari, who initiated the discussion in the Lok Sabha for the opposition, said that government inaction had widened the inequality between the rich and the poor while having failed to provide jobs to the people.

“The government may have balanced its budget, but it has thrown the budget of 25 crore households out of gear with its policies; every homemaker is in tears,” he said. Tewari pointed to the Anoop Satpathy committee’s definition of the poverty line and said that as many as 23-crore people earned less than Rs. 375 per day as per that definition.

The government for its part made the contention that repayment of oil bonds floated by the UPA government was responsible for increasing prices of petrol and diesel. The discussion appeared to ignore the fact that retail fuel prices have remained unchanged since May 22, when the Centre announced excise duty cuts of Rs. 8 and Rs. 6 per litre of petrol and diesel or that similar tax cuts of Rs. 5 and Rs. 10 per litre, announced on November 4, 2021, was followed by a record 137-day freeze from November 2021 to March 2022.

The Hindu in a news report quoting Petroleum Ministry data reported that petrol prices were unchanged for 280 days and diesel prices for 279 days in 2021-22, the highest period of inaction since the onset of the daily price reset regime. These numbers were 279 and 268 days, respectively, for petrol and diesel in 2020-21, affected by the onset of the pandemic.

Over those two years, petrol prices were raised 154 times and reduced 17 times, while diesel prices were increased 149 times and cut 34 times. During 2022-23, till July 20, prices have been raised for both fuels five times and reduced once, the news report said, giving context to the impact of crude on prices.

Economist M Govinda Rao points to costlier petrol and higher imports of gold. “In the first quarter of the year, the trade deficit swelled to $70.25 billion from $31.42 billion. As a result, forex reserves are declining, with the dollar-rupee exchange rate nearing 80 ~ a more than 8 per cent fall in the last year. Much of the Government’s spending is financed by borrowings. The total debt of the Government had increased from Rs 58.66 lakh crore in 2014-15 to Rs 139 lakh crore in 2021-22,” he said.

Experts feel that an honest parliamentary debate keeping politics aside is crucial in the wake of several factors including the National Statistical Organisation (NSO) data that puts retail inflation in India above 7% for three straight months. In June, it was just down to 7.01% from the 7.04% in May.

Taking FMCG as an example, the pressure across categories has been constant with price hikes continuing unabated. In June, prices of soap, detergent, toothpaste and shampoo were on the rise. Data shows that between April and June, companies have raised the prices of a host of products.

As per a report by Kotak Institutional Equities (KIE), Hindustan Unilever (HUL) raised prices of its soaps by 3-20% across brands while ITC increased the price of select stock-keeping units of Fiama Di Wills by 21%. Prices of soaps from Godrej Consumer Products Limited (GCPL), Reckitt Benckiser, and Wipro Consumer have also increased in the range of 4-19% during June versus April.

A report in the Financial Express said that in the detergents segment, HUL raised prices of select products like Rin bars by 8-20% and Rin and Surf Excel detergent powders and liquids by 2-8%. P&G similarly increased prices of its Tide and Ariel detergent powders by 3-7%. Likewise, HUL increased the price of Vim and Jyothy Labs of Exo by 7% and 8%, respectively in the dish wash bars.

After its 40 basis points increase in repo rate in May, the RBI followed another hike of 50 basis points in June. It is expected to announce another hike on August 5. So far, RBI has hiked the repo rate by 90 basis points to tackle the movement of the consumer price index.

The present inflation in the country is at 7.01% and remained above RBI's comfort zone of 6% for the sixth-consecutive month running. During the June 2022 policy, RBI had predicted that inflation would stay above 6% till Q3 of FY23 and only come below 6% fractionally in Q4. On the assumption of a normal monsoon in 2022 and an average crude oil price (Indian basket) of $ 105 per barrel, RBI projected inflation at 6.7% in 2022-23, with Q1 at 7.5%; Q2 at 7.4%; Q3 at 6.2%; and Q4 at 5.8% with risks evenly balanced.