From onions, pulses, black gram, petrol and diesel to eating out, travelling or life insurance service, costs of everything is going up and common people are still hoping for a respite from spiralling prices
Despite several initiatives from the Narendra Modi government, for common people there is little or no respite from rising costs of everything, including food, services or travelling. In fact, the consumer price index (CPI) inflation in October 2015 rose to a four month high at 5%, mainly triggered by increased food prices. As if this was not enough, the central government first increased service tax rate to 14% from 12.36% in June and last week added a Swachh Bharat Cess of 0.5% on the service. This will make services like eating out, telephone bills and travelling more expensive.
During October, the pick-up in food inflation was concentrated in pulses and spices and is not broad-based, despite deficient monsoons. According to Nomura, food price inflation rose to 5.2% y-o-y in October from 3.9% in September. However, the pick-up was concentrated mainly in pulses (+10.1% m-o-m; 42.2% y-o-y) and spices (1% m-o-m; 9.8% y-o-y). Sugar and edible oil prices also rose over the month, reflecting higher global prices. By contrast, prices of vegetables and meat fell over the month, while most other items (cereals, eggs, milk) registered only a modest rise. Overall, while pulses are a cause for concern, food price pressures have not been broad-based despite deficient monsoons for a second consecutive year.
"We expect underlying inflation to stabilise at about 5%, although higher food prices will push headline CPI inflation to above the underlying trend in coming months," Nomura said in a research note.
Within the food products, barring the pulses complex, the other key segment that comprise the food and beverages basket have seen a moderation in their growth rates when compared with the previous year. Prices of pulses and related products increased 24.7% during April-October 2015 from 6.71% same period last year. Meanwhile, high frequency data or daily retail food prices indicate an upside risk to food inflation in the coming months, due to the adverse impact of deficient monsoons.
As per data released by the government, wholesale price index (WPI) inflation in October increased to -3.8% from -4.5% previous month, mainly due to higher food prices. Pulses inflation is above 40% and, for the past one year, has been galloping. In addition, onion inflation, in the past three months, has risen at an average 90%.
According to a report from Economic Times, higher costs of black gram have crushed Kerala and Tamil Nadu's papad industry. "The price of black gram has almost doubled to Rs210 a kg in six weeks, forcing an industry that employs lakhs to cut production or to add alternative substances like rice flour or corn flour to offset the higher cost," the report says.
Raising the price of appalam, a variant of papad used in Tamil Nadu, has resulted in the thinning of orders, it said. Quoting C Pradeep, owner of Anju Appalams in Madurai, the report says, "We had no option but to increase the price from Rs135 per kg to Rs190 as the price of black gram escalated from around Rs7,000 per 100 kg to Rs16,000. But the sales have dropped. We are now working two days a week."
The price rise in not limited to pulses only. According to a report from Business Standard, prices of basmati rise went up by Rs100 per quintal during first week of November due to increased offtake by stockists.
Even prices of fuel are going up despite lower crude oil prices. On Sunday, oil marketing companies (OMCs) increased prices of petrol by 36 paisa per litre and diesel by 87 paisa a litre. Although the Central government on 7th November increased excise duty on petrol by Rs1.60 per litre and on diesel by 40 paisa, OMCs had decided not to pass on the hike to consumers at that time.
Last week, the Central government decided to levy additional 0.5% as Swachh Bharat cess on all services, which are liable to pay service tax. With the imposition of the cess, the service tax rate will go up to 14.5% from 14% on all taxable services. From 15th November, due to imposition of the additional cess, eating out, telephone bills and travelling will became expensive.
Service tax on restaurant bills will go up to 5.8% from 5.6% following the levy of 0.5% Swachh Bharat, or Clean India, cess. The finance ministry has clarified that for restaurants or eating joints having air-conditioning facility, the cess would be 0.5% of 40% of the billed amount that is 0.2%.
Travelling includes first class season as well as AC tickets on railways. According to a Rail Ministry circular, the levies make for a 4.35% hike for travel in first class and all AC classes from 15th November.
Another interesting point is just in June 2015, the government had increased service tax rates to 14% from 12.36%.
This additional cess is expected to fetch the exchequer about Rs3,800 crore in the remaining months of FY2015-16. It is noteworthy to mention that while the Central government would receive all the money, it is the responsibility of the local bodies to keep the environment clean. But there is no mention in the notification as to how this amount collected under Swachh Bharat cess would be passed on to local bodies. It only says, proceeds from the Swachh Bharat cess would be credited to the exchequer and the Central government, after due appropriation from the Parliament, utilise it for financing and promoting Swachh Bharat initiatives or any other related purpose.