We won our independence from the British in 1947, yet we have a “ruler” in India. The sovereign is the government of India. It has the power of the sovereign to wage war, to forge peace, to conclude international treaties and conventions, to borrow money and, above all, to create money. To create money is to strike coins or print banknotes.
Apart from the sovereign, there are bodies which are considered as quasi-sovereigns for reasons that I will not develop for lack of space. Among them are the Central Bank (RBI) and large public banks (eg SBI).
This preface is necessary because in India, strangely, the quasi-rulers seem more concerned with a problem that has agitated the people, while the government seems to think that if it looked away, the problem would go away. I mean inflation, the scarecrow of all democratic governments.
According to the National Statistics Office press release dated July 12, 2021, consumer price inflation in India has exceeded the upper end of the range determined by the government and the RBI. The range is 4 plus / minus 2 percent, but the CPI is 6.23 percent. The urban CPI rose from 5.91% in May to 6.37% in June. Core inflation fell in one month from 5.5% to 5.8%.
Food inflation is 5.58 percent.
Inflation for pulses is 10.01 percent.
Fruit inflation is 11.82 percent.
Transportation inflation is 11.56 percent.
Fuel and lighting inflation is 12.68 percent.
And the inflation for oils and fats is 34.78 percent.
In my opinion, this inflation was not caused by a surge in demand. On the contrary, private consumption demand is weak. This inflation was not caused by too much cash or too much money in the hands of the people. This inflation was caused by the bad policies of the government, in particular its taxation
The July 2021 RBI bulletin admitted, somewhat defensively, that food and fuel prices have risen. Without the favorable base effect (decline in the same period last year), this would have worsened CPI inflation. The Bulletin noted that a “substantial acceleration in inflation has been observed in clothing and footwear, household goods and services, and education.” He also noted that average gasoline prices exceeded Rs 100 per liter, diesel Rs 93.52 per liter, and that kerosene and LPG also saw price increases. More importantly, input costs have increased across manufacturing and services.
All the data points in one direction: government tax policies.
There are three taxes that cause serious damage.
First, taxes on gasoline and diesel, especially taxes imposed by the central government. We can allow central excise and state excise on these fuels because the central and the states need revenue, but there is no justification for these cuts. On gasoline, the cess is Rs 33 per liter, on diesel, the cess is Rs 32 per liter. It is estimated that the central government collects Rs 4-20,000 crore every year through these processes alone and keeps all the money for itself. A cessation is generally imposed for a specific purpose and for a specific period. Both limitations were thrown out the window, and stopping on gasoline and diesel became misused instruments. This is exploitation and greed of the worst kind.
Second, high import duties. Reversing the trend that began in 2004, the government increased import duties on a wide range of products. The result is that intermediate products essential to manufacturing and essential products such as palm oil, pulses and many household items cost more.
Third, the irrational GST rates. The fundamental problem of multiple GST rates remains. Many mass consumption items like toiletries, processed foods, other food products, household appliances, etc. incur GST rates of 12 or 18 percent. The high GST, even after accounting for compensation, pushes up final prices.
Fuel stops are cruel
What the government has ignored is that all of the above taxes – taxes, import duties, and GST – are indirect taxes that are “regressive” in the sense that they apply to both the wealthy and the wealthy. to the poor. Therefore, the burden on the poor is relatively more oppressive. The second aspect that is ignored is that these taxes hit inputs and travel through the value chain, and ultimately push up the prices of final goods and services. Take the fuel prices. Rising fuel prices affect virtually all human activities: travel, transport, agriculture (diesel for tractors and pumps), industry (electricity), services (delivery) and house lighting.
The State Bank of India has warned that spending on fuel has crowded out other non-discretionary spending such as health, groceries and utilities. SBI researchers also found a significant drop in bank deposits, an increase in household indebtedness and a decline in financial savings. They demanded an “urgent lowering of oil prices through fiscal rationalization” and warned that otherwise the economic recovery would be delayed.
What do we think of the attitude of the government “I don’t care if the people are suffering” and the attitude of the people “It is our destiny”? The only possible conclusion is that there is a total perversion of democracy which is supposed to be “the government of the people, by the people and for the people”.