Inflation is a reality in the better part of the world, and India is one of those heavily affected. Its recovery plans are in disarray because of increased food and essential commodity prices. The underlying reason is supply chain issues that have failed to resolve to 100 percent till now, and the Russia-Ukraine invasion.

Industry leaders in India have isolated high food prices as the inhibitor to the economic recovery plans suggested by the government. Noteworthy, the food industry is one of the largest in India, accounting for about half of the consumption and is what causes inflation in the county. Such a colossal figure details the effect of higher food prices on any plans to tame inflation forwarded by the government.

Inflation in India

Unlike most of Europe, whose inflation surged upwards of 10 percent on average. India has enjoyed a relatively lower rate of about 6 percent. According to government data, food prices were a major contributor to the extraordinary inflation rate.

India stood among the top ten countries majorly affected by Covid-19 in 2022. The economy of the country plunged at a historic rate, clawing back some gains made in a decade. In March, the food inflation stood at about 5 percent. Vegetables sell 16 percent higher than previously before the cost-of-living crisis. Oils had a historic spike in inflation rate as they retail at about 18 percent more.

Impact of Inflation

Higher food prices mean more money spent on essentials, while luxury Goods companies suffer lower sales. Meaning, food prices have a ripple effect on other industries in the country, and the overall economy.

While food is essential and remains the most sought-after commodity in any economy, fuel comes second. So far, India has witnessed an unprecedented cost on fuel commodities that help run the economy, albeit fuel supply from Russia. Steeper fuel prices have hit the county’s lower income bracket the most, with some more—totalling millions—falling under the poverty line.

Reasons for High Inflation

Covid is a major culprit when talking about inflation anywhere in the world. However, beyond the pandemic, exist the Russia-Ukraine conflict that is yet to resolve. To touch on Covid, the pandemic drove down demand for most goods and services, which spiked as soon as countries came out of lockdowns. The quick turnaround meant that supply chain routes could not cope quickly. Some producers also shut their operations during Covid, further curtailing the quick movement of goods and services to the consumer.

India is a significant partner of both Ukraine and Russia. During the conflict, the country could not source sunflower oil from Ukraine—a situation that drove up energy prices. Since the crisis, India has seen sunflower oil prices double, as it had to look for new suppliers. Higher oil prices have hit the lower income earners who have to look for alternatives or find new ways to cook their food.

Supply chain issues because of the war are issues that lead to higher food prices, and market reaction is another, with opportunists who raise the price to earn more money.

Impact on the Growth Projections

Current projections by the World Bank will see India’s growth fall from 8.7 percent to 8 percent. While the figures might sound impressive anywhere in the world, the impact of the reverse will influence India’s short and medium plans.

Higher oil and food prices will push people to the brink, making them focus on essential commodities alone. Indeed, changes to economic growth will also push India to alter its growth projections that were already in motion. Businesses have felt the impact, and are cutting down their labour force to maintain steady incomes. As projections highlight, the dire situation will continue for a while, until normalcy returns in supply chains and the Ukraine-Russian war ends.

Bottom Line

Inflation and increasing interest rates have a significant impact on the economy. Projections highlight lower-than-projected growth in the better part of the world due to supply issues and the war in Eastern Europe that has failed to resolve one year later. The impact is a squeeze on families trying to cope.