States and Center should cut fuel duty to reduce inflation and fuel consumption
The latest sets of data on industrial output and retail inflation are deceptively likable, with the former showing double-digit year-on-year growth in output, and the latter a sharp slowdown in price gains. NS Index of Industrial Production (IIP) And Consumer Price Index (CPI) Data released on Tuesday showed industrial output grew 11.9% in August, while inflation in September fell 95 basis points from the previous month to 4.35%. The numbers indicate a gathering improvement in economic momentum, even as CPI-based inflation eases towards the RBI’s mandated target of 4%. The IIP components – mining, manufacturing and power – registered significant improvements of 23.6%, 9.7% and 16%, respectively. But a closer look shows that the production figures were largely hit by the contraction last year when the economy was still struggling to recover from the first COVID-19 lockdown. In the case of IIP data for August 2020, the weak base hides the fact that production actually shrank 0.2% on a month-on-month basis this year with mining and manufacturing, which together account for 94% of the index, Posts a gradual contraction of 0.8% and 0.5%, respectively. From July only consumer non-durables and posted construction goods increase. The slowdown in the consumer durables segment reflects a slowdown in demand for white goods amid the pandemic.
With output showing a rebounding in IIP numbers for the last fiscal in September-October 2020, and some industrial sectors including automobile manufacturing this year hit by raw material shortages and logistical constraints, production finds it difficult to sustain the growth momentum. Inflation has also benefited from higher levels in the year-ago period, when the headline reading rose to 7.3% in September 2020, and later climbed to 7.6% last October. CPI data masks the true extent of price pressure across key product categories. Major protein sources, including meat and fish and pulses and by-products, recorded provisional inflation of 7.99% and 8.75%, respectively, while oil and fat, reducing nutritional security, especially in large numbers facing job or income cuts. The price of an important cooking medium was observed. There is a penalty 34.2% for speeding up profits. Transport and communication, which captures the pump prices of petrol and diesel, also remained close to double digits at 9.5 per cent. With crude oil hitting a three-year high globally, unless the central and state governments agree to respond to RBI’s requests and cut fuel duty, inflation in this category is likely to be very low. There is less scope. The coal crisis that is affecting power generation will certainly create ripples in all sectors and undermine price stability unless policy makers intervene in a hurry.
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