India’s Giving Inflation Room to Grow, But That May Bite
The RBI wants to push growth up but cost increases are threatening the survival of smaller firms as they lose market share to their larger rivals.
Inflation in India involves way more than the price of onions.
Photographer: Bloomberg/BloombergInflation is getting a free pass in India. Policy makers seem to believe that by not raising interest rates and letting prices bubble up for a bit they will encourage investment and employment and boost post-pandemic growth. In reality, however, the connection between output, jobs and prices may be more complex. Ignoring inflation may just allow it to bite.
India’s politicians well understand that elections can be won or lost over onion prices. With only 83 million people in salaried occupations in a country of 1.4 billion, households don’t have a lot of bargaining power over wages to cope with a higher cost of living. What’s less well appreciated is the differential impact of prices on producers, especially on pandemic-scarred small operations with thin profit margins.