NEW DELHI, India, Nov.27, and Reuter: India’s worst drought this century will deal a body blow to the government’s fight against poverty by doubling inflation to at least 10 per cent, economists said.
Price rises, which have brought loud protests in Parliament, will also lower industrial and economic growth and sharply increase state spending.
“Inflation will rise to between 10 and 12 per cent (by the end of fiscal 1987/88 in March),” said Y.P. Srivastava, analyst with the Federation of Indian Chambers of ‘Commerce and Industry (FICC.
“The government will also need to raise expenditure to pay for higher levels of purchases for its public distribution system”, he said.
Srivastava said in an interview that Indian industry would grow only six per cent this year, down from 89 per cent in 198687, because of depressed domestic demand caused by inflation.
He said the economy would ‘grow between 1.5 and two per cent, compared with five per cent last year, but added it was too early to say how much more the government would have to spend to control prices.
The World Bank estimated that this year’s unexpectedly weak monsoon would halt economic growth altogether. Officials have said the drought will cost an additional 19 billion rupees (1.5 billion dollars) in state expenditure,
The government of Prime Minister Rajiv Gandhi has set its sights ‘on cutting the proportion of India’s 300 million people living below the poverty line from 37 to 26 per cent by the time a current five-year economic plan ends in 1990.
- Sriram, senior FICCI economist, said: “The government may not be able to reduce the poverty level, in fact the drought ‘will push a large number of people below the poverty line”.
“On the whole, the government has done quite well in food distribution and price control, considering severity of the drought”, he said.
‘The rest is i God”.
He said a similar drought next year could pose serious problems for India’s population, cushioned from starvation so far by a food grain buffer which stood at 23.4 million tonnes at July 1, 1987.
India’s main price barometer, the wholesale price index, rose 7.4 per cent from April to August; compared with a 5.4 per cent average rise for the whole of 198687, the index rose 3.7 per cent in 1985/86.
The Punjab Haryana Delhi Chamber of Commerce and Industry said in a recent report of the price rise: “At this rate, by the end of the current financial year we shall have at least two digit inflation”.
Analysts said the prices normally fall from October following crop harvests but is expected to climb this season due to the drought.
The inflation rate had been contained in the last few years because the government had controlled money supply growth besides maintaining a close watch on basic food items, the analysts said the hands of
Government ministers admitted in Parliament this month that prices had risen for essential commodities such as edible oils, spices and pulses.
Minister of State for Finance BK. Gadhvi denied inflation was hitting double-digit levels.
However bankers said the rupee had been allowed to slide with the US. Dollar in recent weeks and had fallen in value particularly against other major currencies.
Food and civil supplies Minister H.K.L. Bhago told Parliament the government had stepped up raids against shops hoarding essential commodities to curb speculation and price rises.
Article extracted from this publication >> December 4, 1987
