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Price Hikes in India’s Commodities: Unraveling the Causes and Impacts of Rising Costs in 2023

Introduction

Continuous price hikes in India’s commodities have become a major concern for the common man. The prices of essential commodities such as food, fuel, and cooking oil have been rising steadily in recent months, putting a strain on household budgets.

There are a number of factors that have contributed to the recent price hikes. One of the main factors is the ongoing war in Ukraine, which has disrupted global supply chains and led to higher prices for energy and agricultural commodities.

Another factor is the rising demand for commodities from emerging economies such as China and India. As these economies develop, their demand for commodities such as oil, steel, and copper is increasing. This, in turn, is putting upward pressure on global prices.

In addition, India is a net importer of many essential commodities, such as crude oil, edible oils, and pulses. This means that the country is vulnerable to fluctuations in global prices. When global prices rise, it is passed on to Indian consumers.

Price Hike

Understanding the Economic Landscape

We will try to understand the economic landscape of India is essential for anyone who wants to do business in the country or invest in its economy. India is a complex and diverse country, and its economy is no exception. In the grand tapestry of global economies, it proudly stands as the fifth-largest, dancing to the rhythm of nominal GDP, and claiming the bronze medal for sheer economic might when measured by purchasing power parity (PPP). India’s economy is growing rapidly, and it is expected to become the world’s third-largest economy by nominal GDP by 2030.

Key Features of the Indian Economy

  • Rapid growth: India is one of the fastest-growing economies in the world. Its real GDP growth rate is expected to be around 6.3% in 2023-24, despite the global economic slowdown.
  • Large domestic market: In the heart of India beats a vibrant pulse, a vast domestic market teeming with the life force of over 1.3 billion souls. This immense human tapestry isn’t just a statistic; it’s the beating heart, the very soul, that propels the nation’s economic growth forward.
  • Young population: India has a young population, with over half of the population under the age of 25. This is a boon for the economy, as it provides a large pool of potential workers and consumers.
  • Rising urbanization: India is experiencing rapid urbanization. This is leading to the growth of new industries and the creation of new jobs.
  • Government reforms: The Indian government has been implementing a number of reforms in recent years to make the economy more business-friendly and to attract foreign investment.

Key Sectors of the Indian Economy

The key sectors of the Indian economy include:

  • Agriculture: Agriculture is the largest sector of the Indian economy, accounting for around 18% of GDP and employing over 40% of the workforce.
Agriculture Employment
Agriculture Contribution in GDP
  • Services: The services sector is the fastest-growing sector of the Indian economy, accounting for around 60% of GDP. It includes industries such as IT, financial services, and tourism.
Services Sector
  • Industry: The industrial sector accounts for around 22% of GDP and employs around 20% of the workforce. It includes industries such as manufacturing, construction, and mining.
Industry contribution

Challenges Facing the Indian Economy

Despite its rapid growth, the Indian economy faces a number of challenges, including:

  • Poverty: India has a high poverty rate, with around 22% of the population living below the poverty line.
  • Unemployment: According to the Centre for Monitoring the Indian Economy (CMIE), the unemployment rate in India in August 2023 was 7.95%. This is a slight increase from the previous month’s unemployment rate of 7.93%.
Unemployment Rate by CMIE
  • Infrastructure deficit: India has a large infrastructure deficit, which is estimated to be around $1.5 trillion. This deficit is due to a number of factors, including:
  1. Underinvestment in infrastructure in the past
  2. Rapid economic growth has put a strain on existing infrastructure
  3. A large and growing population
  • Inflation: The inflation rate in India in August 2023 was 6.83%, according to the Ministry of Statistics and Programme Implementation. This is a slight decline from the previous month’s inflation rate of 7.44%.
Inflation

The Reserve Bank of India (RBI) has a target inflation rate of 4% with a 2% tolerance band. The current inflation rate is above the RBI’s target range.

RBI target inflation rate

The high inflation rate is a major concern for the Indian government and the RBI. It is eroding the purchasing power of consumers and is also making it difficult for businesses to plan and invest.

  • Fiscal deficit: The fiscal deficit in India for the financial year 2023-24 is projected to be 5.9% of GDP, according to the Union Budget 2023-24 presented by the Finance Minister on February 1, 2023.
Fiscal Deficit

The fiscal deficit is the delicate balance between a government’s dreams etched in expenditure and the song of financial sustenance sung by its revenue. It’s not just a numerical variance; it’s the ebb and flow of aspirations and financial reality. It is a measure of how much the government is borrowing to finance its spending.

Outlook for the Indian Economy

The outlook for the Indian economy is positive. The economy is expected to continue to grow rapidly in the coming years, driven by a number of factors, including a young population, rising urbanization, and government reforms. However, the economy faces a number of challenges, such as poverty, unemployment, and infrastructure deficit. The government needs to address these challenges in order to sustain economic growth.

Impact of Price Hikes on Livelihood and Economy

The rising prices of essential commodities have a significant impact on the livelihood of the common man. For low-income households, a large portion of their income is spent on food and other necessities. When prices rise, it reduces their purchasing power and makes it difficult to meet their basic needs.

The price hikes also have a negative impact on the economy. When businesses have to pay more for their inputs, it increases their costs and reduces their profits. This scenario can cast a somber shadow, where jobs become casualties and the heartbeat of economic growth falters into a slower, melancholic rhythm.

These are a few reasons why the economy is affected by the price hike

1. Inflationary Pressures

2. Reduced Consumer Spending

3. Strain on Household Budgets

4. Impact on Small Businesses

5. Distorted Economic Planning

6. Government Fiscal Challenges

7. Social Unrest and Discontent

8. Impact on Investments

Causes of Price Hikes in India’s Commodities

There are a number of factors that have contributed to the recent price hikes in India’s commodities. Some of the key factors include:

  • The ongoing war in Ukraine: The war has disrupted global supply chains and led to higher prices for energy and agricultural commodities. India imports a significant amount of its crude oil and edible oils from Russia and Ukraine. The disruption to supplies from these countries has led to higher prices for these commodities in India.
  • Rising demand from emerging economies: The demand for commodities from emerging economies such as China and India is increasing as these economies develop. This is, in turn, putting upward pressure on global prices.
  • India’s dependence on imports: India is a net importer of many essential commodities, such as crude oil, edible oils, and pulses. This means that the country is vulnerable to fluctuations in global prices. When global prices rise, it is passed on to Indian consumers.
  • Domestic factors: There are a number of domestic factors that have also contributed to the price hikes, such as supply disruptions, high taxes, and cartelization.

What are the Essential Commodities impacted by price hike?

Essential commodities are goods that are considered to be necessary for the survival and well-being of people. The Essential Commodities Act of 1955 defines essential commodities as:

  • Foodstuffs, including edible oils and seeds;
  • Drugs;
  • Petroleum products;
  • Fertilizers;
  • Cement;
  • Steel;
  • Coal;
  • Textiles;
  • Paper;
  • Newsprint;
  • Insecticides;
  • Pesticides;
  • Seeds;
  • Drugs;
  • Pharmaceuticals;
  • Petroleum products.

What steps has the GOI taken to control the price hike?

The government has taken a number of measures to control price hikes, including:

  • Reducing taxes on essential commodities;
  • Releasing stocks from government reserves;
  • Imposing import duties on certain commodities;
  • Cracking down on cartelization and hoarding.

However, these measures have not been able to fully contain the price hikes.

Conclusion

In the labyrinth of continuous price hikes that have woven themselves into the fabric of India’s commodities, the conclusion draws us into a poignant reflection. These soaring prices aren’t just numerical fluctuations; they are the vivid strokes on the canvas of everyday life, painting a landscape of challenges and resilience.

As we navigate through the intricate web of causes, from global market dynamics to local policy shortcomings, the emotional toll becomes undeniable. It’s not merely about statistics but the stories of families tightening their belts, local businesses facing the brink of survival, and the quiet struggles of individuals grappling with financial uncertainty.

The impact is not just economic; it’s a collective sigh echoing through communities, a shared burden that transcends balance sheets. It manifests in the anxiety-laden moments at the kitchen table, the hushed conversations about uncertain futures, and the unspoken resilience of communities finding innovative ways to weather the storm.

In the face of relentless price hikes, we witness not only economic challenges but also the indomitable spirit of individuals and communities. The conclusion becomes a call to action, urging us to look beyond the numbers and embrace sustainable practices, responsible consumer choices, and community support.

It’s a plea for empathy, an acknowledgment of the emotional toll these economic fluctuations take on mental health, and a testament to the strength embedded in the human spirit. As we wrap our minds around the conclusion, we are left not just with an understanding of the causes and impacts but with a deeper appreciation for the human stories that unfold within the folds of economic complexities.

In the symphony of continuous price hikes, the conclusion invites us to join the collective narrative of resilience, compassion, and a shared vision for a more stable and sustainable future.

Frequently Asked Questions

Q1: Why are commodity prices continuously rising in India?

The continuous rise in commodity prices can be attributed to a complex interplay of factors, including global market dynamics, government policies, and demand-supply imbalances.

Q2: How do commodity price hikes impact the average household?

Rising commodity prices directly affect the cost of living, putting a strain on household budgets and leading to financial stress for many families.

Q3: Are there any government initiatives to control commodity prices?

While the government has implemented various initiatives, the effectiveness of these measures varies, and challenges persist.

Q4: How can individuals cope with the economic impact of price hikes?

Individuals can explore budgeting strategies, seek community support, and adapt to sustainable practices to mitigate the impact of rising prices.

Q5: Is there hope for a turnaround in the commodity price situation?

Hope lies in collective efforts toward sustainable practices, innovative solutions, and effective government interventions to stabilize commodity prices.

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