The Peninsula Foundation

Tag: WPI

  • India’s Unorganised Sector Is Being Engulfed, Further Marginalised

    India’s Unorganised Sector Is Being Engulfed, Further Marginalised

    The organised sector must consider how much can the unorganised sector be run down without hurting its own interest.

    The corporate sector is doing well, as indicated by the stock market which reflects its health. But the corporates represent only a few thousand businesses out of the crores operating in the country. Ninety-nine percent of the businesses are in the unorganised sector and reports suggest that they are declining. The official GDP for Q1 of the current financial year 2022-23 was 3.3% above its pre-pandemic level. Yet, the stock markets are close to their historic high achieved in 2021. This disjuncture between the stock market and the economy reflects the surge in corporate profits in a stagnant economy – and there is a story behind it.

    The Reserve Bank of India data on around 2,700 non-government, non-financial companies released in August 2022 shows that the sales of these companies surged 41% and net profits increased by 24% over the last year. Even if these figures are deflated by the wholesale price index (WPI) which has been rising at above 10% during this period, the corporate sector surge far exceeds the growth of the economy. If one component of the economy is rising so rapidly, the other part, the non-corporate sector in industry, must be shrinking. The difficulty with the official data is that it does not independently capture the decline of the unorganised sector (it is proxied by the growing organised sector). If the true rate of growth could be obtained, the disjuncture between the official growth rate and the rise in the stock market would be even greater.

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  • Will Government Steps Tame Runaway Inflation?

    Will Government Steps Tame Runaway Inflation?

    “The steps announced by the government are only a first step. Prices of essentials have to be brought down (not just rate of inflation) and wages indexed to inflation”

    WPI rising at 15.08% in April 2022 has set alarm bells ringing in the government. Not only has the WPI been rising at above 10% per annum for over 13 months, but it has also been rising faster since February 2022. In other words, it has accelerated. Of course, the war in Ukraine has impacted it but it had been rising rapidly prior to that. In November 2021 it had risen by 14.87%. It moderated a little till January 2022 and then again rose.

    In November 2021 the government had cut taxes on petro goods to bring down their prices. Now the government has again cut these taxes in the hope of moderating inflation. By restricting the exports of wheat and sugar it seeks to lower their prices. Additionally, it has acted to lower the prices of basics like steel, cement and plastics. These steps should help moderate inflation. The issue is how much and whether it will benefit the citizens, especially the marginalized ones?

    Acceleration and Generalization to all Commodities.

    When indirect taxes are levied on basic items of production, they feed into the price of all other products. For instance, if the price of energy rises, since it is used in all production, the price of all products rises – there is a generalized price rise. If the tax on diesel is raised, transport costs, cost of running pumps in the fields and electricity generated using diesel rise. Similar is the case with coal, cement, steel and plastics. So, one way of lowering the rate of inflation is to reduce taxes on these basics.

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