Cushioning the impact of fuel price shocks

Skyrocketing prices of fuels, vegetables, fruits, and other essential commodities are burning large holes in the pockets of consumers. The Reserve Bank of India (RBI) raised the inflation forecast to 5.7% from 4.5% earlier and lowered the GDP growth forecast for the current financial year to 7.2% as against 7.8% projected by it earlier indicating that the coming days are going to be tougher. The Monetary Policy Committee (MPC) of the RBI has announced that inflation in the first quarter could rise to 5.8% and 5.9% in the second quarter which presents a bleak scenario. The RBI has sounded caution that the Russia-Ukraine conflict poses considerable upside risks to prices of key food items and the war may have a significant impact on inflation through the global commodity markets channel. A key source of core inflationary pressures from September 2021 to February 2022, the MPC points out, has been petrol and diesel. Clamour for a cut in central excise duty and state Value Added Tax on petrol and diesel for the moderation of fuel price is gaining ground given the inflationary pressure. In Assam, commuters already grappling with skyrocketing prices of essential commodities, are staring at a hike in fares of buses and other public transport. All Assam Motor Transport Association is pushing for a 70% hike in fares on account of surging petrol and diesel prices. If the commuters are made to spend more on transportation, then they will be forced to cut their expenditure budgets for other goods and services which, in turn, will lead to suppression of demands for goods and services in the market. The RBI Monetary Policy Report released on Friday states that recent geopolitical events have accentuated upside risks to inflation. "Global supply shocks are still unfolding and their ambit across commodities is widening. Input costs, including energy costs, for various manufacturing goods and services are also likely to go up," it states. Consumers in Assam and other north-eastern states dependent on supplies from other states to meet demands of food grains, vegetables, fruits, and most other essential commodities, are beginning to feel the pinch. The RBI policy report explains that in the case of edible oils, the loss of supplies of sunflower oil from the Black Sea region is likely to keep domestic prices under pressure. The Black Sea region accounts for around 75 per cent of global production of sunflower oil and is a key supplier to India, it highlights and adds that the situation is being compounded by the tightness in the global soybean market and the increase in export levies as well as export restrictions by key producing countries. It is reassuring to know that a significant increase in domestic mustard production is likely to provide some cushion to the price pressures as forecast by the MPC in its latest report. The MPC attributes the food price build up in 2021-22 till February which was higher than historical patterns due to a spike in vegetable and edible oil prices. Hike in fuel prices and global supply chain disruptions have also led to a steep rise in the prices of construction materials. This has made the completion of construction of concrete houses under the Central government's flagship housing scheme – Pradhan Mantri Awaas Yojana (Gramin) difficult for many beneficiaries. Escalation in construction costs will cause a spike in housing prices in the real estate sector and for the buyers, the dream of an affordable home is poised to fade away with builders indicating passing rising input costs to buyers. The Central government monitors the wholesale and retail prices of 22 essential commodities on daily basis through 179 Price Reporting Centres across the country. For the entire northeast region, there are only eight centres with one centre in each grossly inadequate state. Unscrupulous traders take advantage of insufficient monitoring centres to pass on the higher cost to buyers on the pretext of price escalation at sources and a rise in transportation costs. States like Assam ensuring effective utilisation of the Price Stabilization Fund mechanism that was set up by the Central government with an initial corpus of Rs 500 crore for tacking price volatility of agricultural and horticultural commodities like onion, potatoes, and pulses can make a difference. Assam and other states in the region focusing on increasing production of these commodities is also critical to moderate prices by reducing dependence on supplies from other states. Assam procures 86% of total pulses requirement from other states which are projected is to increase to 9.45 lakh MT in 2025-26 from the current year's requirement of about 8.91 lakh MT. Against the annual requirement of about 40 lakh MT, total potato production in 2021-22 was only 7.61 lakh MT and the state had to procure more than 32 lakh MT from other states. The state attaining self-sufficiency is vital to protect the masses from a price hike in essential commodities.