Sign of 'achche din', inflation at 4-month low

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Prices of vegetables as a category declined by 5.89 per cent in June.
After confronting with a series of controversies, the newly-elected Modi Government has got some good reason to cheer. The inflation which rose to five-month high of 6.01 per cent in May, dipped to 5.43 per cent in June mainly on account of decline in prices of food items and vegetables.

As per the Wholesale Price Index (WPI) inflation, prices of vegetables as a category declined by 5.89 per cent during the month, while that of potato and onion soared by 42.51 per cent and 10.70 per cent respectively in the wholesale market. Among other important items, prices of sugar and edible oils fell by 2.09 per cent and 0.75 per cent respectively during June.

In May, wholesale prices rose a faster-than-expected 6.01 percent as a 19 percent increase in potato prices during the month pushed up food inflation to 9.50 percent from 8.64 percent in April.

The reason for this could be restriction on farm exports by the Modi Government. Soon after assuming office in May, Modi who placed the issue of keeping inflation under control on the top of his agenda, has directed his Ministers to start working on the measures to tame inflation.

Steps taken by Modi Government to tame inflation:

Modi as the Chief Minister of Gujarat had headed a working group on consumer affairs, which consisted of the Chief Ministers of Maharashtra, Andhra Pradesh and Tamil Nadu. In his report submitted to the Centre in 2011, he had suggested some viable ways to control prices, though they were never implemented by the Centre. During his electioneering for the 2014 Lok Sabha election, Modi had prominently raised how the UPA Government trashed his report. Soon after assuming office, his new Government has already started working on those measures.

Among others, the Government set a minimum export price for onions of $300 per tonne to discourage overseas exports.

In 2009, weak monsoon drove annual food inflation up to more than 21 percent.

The Modi Government also directed the State Governments to take measures to crackdown on hoarding and black marketing to rein in prices and de-listing items such as onions and potato.

The statistics so far...

As per data by Ministry of Statistics and Programme Implementation (MOSPI), the inflation rate was recorded at 8.28 percent in May, 2014. Inflation rate averaged at 9.62 percent from 2012 until 2014, reaching an all time high of 11.16 per cent in November, 2013 and a record low of 7.55 per cent in January, 2012.

But, a tough road ahead...

Modi has made controlling inflation a priority since taking office in May, but prospects of weak summer monsoon rains and turmoil in Iraq have increased the risk of rising food and fuel prices. The MeT department has predicted below the average rainfall this year, it could hit summer crops, and thus adding to the price rise. In 2009, weaker monsoon led to drought which further drove annual food inflation up to more than 21 percent.

Given the drought threat which cause acute scarcity of food in large parts of the country almost every year, the Prime Minister had called for utilising the knowledge of agricultural scientists so that farmers could get better harvest by using minimum available resources. Prime Minister Narendra Modi also convened a meeting in this regard where Agriculture Ministry presented a contingency plan for 500 districts, facing drought this year. To reduce the impact, the new administration is mulling to give subsidised diesel, cheaper loans and extra seeds to farmers.

The new Government has inherited economic woes with high level of inflation and fiscal deficit from previous UPA Government. The decade long UPA regime had miserably failed in containing inflation and price rise which had resulted in its historic rout in the Lok Sabha election 2014. But the promptness of the Prime Minister and his team which reflected in recent Budget, reflects the vision of the new dispensation. It is a good sign for the Indian economy that has been a victim of the shoddiness and policy paralysis of the previous UPA Governments.

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