📰 ₹50,000 for each COVID-19 death
States to pay kin from SDRF as per NDMA recommendation, government tells Supreme Court
•The Ministry of Home Affairs on Wednesday informed the Supreme Court that the National Disaster Management Authority (NDMA) has recommended the payment of ₹50,000 each as ex gratia assistance to the next kin of those who died of COVID-19, including those who succumbed to the virus while involved in relief operations and preparedness activities.
•The financial aid would be given, provided that the cause of death is certified as COVID-19.
•The money would be provided by the States from the State Disaster Response Fund (SDRF). The disbursement of the amounts would be carried out by the District Disaster Management Authority/district administration concerned to the families.
•In case of grievances regarding certification of death as prescribed in the Health Ministry and the Indian Council of Medical Research (ICMR), district-level committees comprising Additional District Collector, Chief Medical Officer of Health (CMOH), Additional CMOH/Principal or HOD Medicine of a medical college (if one exists in the district) and a subject expert would propose the necessary remedial measures, including issuance of amended official document for COVID-19 death after verifying facts in accordance with the Health Ministry and ICMR guidelines.
•“In case the decision of the committee is not in favour of the claimant, a clear reason for the same shall be recorded,” the NDMA guidelines annexed in the 11-page affidavit said.
•The Supreme Court, in a judgment on June 30 based on a petition filed by advocate Gaurav Bansal, had directed the NDMA to recommend guidelines for giving ex gratia assistance to the families of persons who died of COVID-19 as mandated under Section 12 (iii) of the Disaster Management Act of 2005.
•The guidelines underscored that the payment of ex gratia would be a “continuous scheme”.
•“The ex gratia assistance to families affected by COVID-19 deaths will continue to be provided for deaths that may occur in the future phases of the COVID-19 pandemic as well, or until further notification,” the NDMA said.
•The NDMA made a point to remind that the pandemic has not abated. The total number of deaths continues to rise. There is also uncertainty about new variants of the virus and likely future waves. It advocated “financial prudence”.
•“Therefore, it is not possible to ascertain the total financial burden emanating from the ex gratia assistance. Financial prudence demands that we plan in a manner that assistance can be provided to a large number of people, should the number of deaths rise,” its guidelines said.
•The guidelines noted that States have already been incurring large expenditure from SDRF on various aspects of COVID-19 prevention, management and response.
•The Centre has also, from the national budget, announced several measures to prevent the virus, including the vaccination drive, as well as providing for the welfare and support of those affected like orphaned children and the PM Garib Kalyan Yojana package.
•“State governments have announced welfare measures from the State budgets. So, in effect, some financial and material assistance has already been provided in different forms to some of the most vulnerable sections,” the NDMA mentioned in its guidelines.
•The NDMA said that while the pandemic was an “unprecedented disaster”, other natural disasters that occur frequently have not abated.
•“It is important that sufficient funds are available under SDRF to provide a timely and effective response to other disasters as well,” the NDMA noted.
However, discussion on vaccination certificates still on.
•The United Kingdom on Wednesday formally recognised COVID-19 vaccine Covishield produced by the Serum Institute of India (SII). The recognition will become effective from 4 a.m. of October 4. It was, however, told to The Hindu that discussion on vaccination certificates was still on.
•Wednesday’s announcement did not include any change in India's position in the ‘Amber List’, while the U.K. has cleared 18 countries for the ‘Green List’.
•The development came a day after External Affairs Minister S. Jaishankar met his British counterpart Liz Truss in New York on the sidelines of the ongoing United Nations General Assembly and urged the U.K. to address the issue around the status of Covishield and the requirement of quarantine for 10 days in case of Indian travellers.
•The Hindu reported on Wednesday that recognition of Covishield is not a problem for the U.K. and the real challenge has been about India’s vaccination certificates.
•U.K. High Commission officials said they were still in discussion “over vaccination certification with the Government of India”, indicating that a final decision on whether to include India in the list of recognised vaccine administrators has not yet been made.
Only ‘Red List’ from Oct. 4
•British High Commissioner Alex Ellis in an interview with NDTV on Wednesday highlighted that “lots of people” were travelling from India to the U.K. and that his country had conducted “detailed conversation” internally on India’s vaccine certificates. From 4 a.m. of October 4, the U.K. will do away with the traffic light system of ‘Red, Amber and Green’ lists and create a single ‘Red List’ to ensure greater ease.
•London has cleared 18 nations, including Canada, Denmark, Antigua and Barbuda, for the ‘Green List’, which will allow doubly vaccinated travellers from these countries to fly to the U.K. without quarantine requirement. The current rules and the recognition of Covishield means that a traveller from the ‘Green List’ countries can use Covishield vaccine before flying to the U.K., but an Indian traveller from India will still have to undergo quarantine lasting 10 days despite using the same vaccine.
•According to the latest announcement, the U.K.-approved vaccines will have to be administered 14 days before travelling to that country. Britain took India out of the ‘Red List’ and placed it in the ‘Amber List’ on August 8 that removed the requirement of hotel or institutional quarantine for Indian travellers but retained the need for home quarantine for 10 days. There were no changes in India’s position in the ‘Amber List’ and the requirement of quarantined private stay lasting 10 days has also been retained.
•On Tuesday, Foreign Secretary Harsh Vardhan Shringla stated that India could impose “reciprocal measures” if the U.K. continued with its policy on Covishield. He termed it “discriminatory”.
📰 Experts welcome stricter air quality norms
‘Revised WHO guidelines will put more pressure on govt. to combat pollution’
•The stricter air quality standards issued by the World Health Organization (WHO) on Wednesday are a welcome move but it will be challenging for Delhi to achieve the new limits, experts and officials said.
•“The new norms will put more pressure on the government to form policies to achieve stricter standards of air pollution. But achieving the new standards is going to be challenging,” said an official of the Delhi Pollution Control Committee.
•The WHO, in the first update of its air quality guidelines in 15 years, has tightened global air pollution standards in recognition of emerging science that the impact of air pollution on health is much more serious than earlier envisaged.
•For instance, the upper limit of annual PM2.5 (particulate matter) as per the 2005 standards, which is what countries now follow, is 10 microgram per cubic metre. That has now been revised to five microgram per cubic metre.
•Anumita Roychowdhury, head of Clean Air Programme at the Centre for Science and Environment, said the WHO’s air quality norms are not legally binding on countries, but rather a general guide for what nations should set as goals.
•“The Central Pollution Control Board is expected to revise the national ambient air quality standards soon and the new WHO guidelines need to be the reference point for developing appropriate intermediate targets for India,” she said.
•For Delhi and large parts of north India, it will be difficult to achieve these new guidelines, but the WHO has proposed a step-by-step approach through progressive tightening of intermediate standards, she added.
•“During the lockdown, air pollution halved in Delhi when local pollution and regional influence could be minimised. Even then we were not near the WHO guidelines. In 2020, the annual average level of PM2.5 in Delhi was 98 micrograms per cubic metre, against the national standard of 40. The WHO is asking for annual average of 5 micrograms per cubic metre. This bears out the scale and speed with which we need to push action in Delhi and across the regions to meet our own standards first,” the expert said.
•She said that it is not clear why the WHO has increased the bar for SO2 levels from 20 to 40 ug/m3.
📰 A time to introspect: On Centre-State dialogue and GST
More Centre-State deliberations needed with GST regime at a critical turning point
•At its first physical meeting during the pandemic, the GST Council approved a flurry of changes. Concessional tax rates on vital COVID-19 equipment such as oxygen concentrators will lapse on September 30, while the lower rates on medicines were extended till December. Whatever the pace of vaccination, there are no signs the virus and its variants would be extinct on New Year’s Day, so the Council could have taken a more considerate view on pandemic essentials. Tax rate tweaks were okayed for an eclectic range of sectors with long-pending course correction on inverted duty structures plaguing several items, including footwear and textiles. The semblance of clarity brought in on a much-disputed issue — the definition of an intermediary — is welcome, for it was hurting several sectors, including IT services exports. Double taxation on the import of leased aircraft goes. Food delivery services players shall be made liable to collect and remit taxes instead of the restaurants. One awaits the fine print to assess the impact on consumers and smaller outlets. The plan to tax coconut oil as a personal care item at 18% for pack sizes below one litre and retain the 5% rate on edible oils for larger packs, has been held back for study, and will hopefully be shelved for good.
•These pluses and minuses aside, two things stand out for Indian consumers — the Council’s firm dismissal of any shift of petroleum products to GST to lower the tax burden and the fact that GST cess on automobiles, tobacco and aerated drinks will now be levied till April 2026, not June 2022 as originally envisaged. While the Council may have discussed petro products only briefly to comply with a Kerala High Court order, consumers who need some relief on fuel prices — irrespective of who cuts taxes — may have held misplaced hopes. If the Government really wants a consumption rebound that may reignite private investments, the Centre and States must begin talks on rationalising fuel taxes. The Finance Minister has often expressed the worry: ‘What if we cut taxes and States do not’. Perhaps, a compact could be arrived at, so both give up a little revenue to spur spending. A similar dialogue is needed for an honest review of the GST regime’s progress and the way ahead. With just nine more months of assured compensation for States, they are worried about revenue streams falling off the cliff thereafter. Their pleas for an extension in the compensation period have met with stern diffidence and the argument that GST revenues are below expectations. Two ministerial groups have been tasked to augment revenues using technology and rate rationalisations. The Centre need not wait for their reports to hold a special Council meeting to discuss States’ compensation concerns, as had been promised. At this juncture, the Council should be a forum for empathetic contemplation, not fractious friction.
📰 Sea level rise is certain
This has implications for the future even under the low emissions scenarios
•The recently published Intergovernmental Panel on Climate Change (IPCC) Assessment Report from Working Group I — ‘Climate Change 2021: The Physical Science Basis’ — is a clarion call for climate action. It provides one of the most expansive scientific reviews on the science and impacts of climate change.
•The report discusses five different shared socio-economic pathways for the future with varying levels of greenhouse gas (GHG) emissions. The scenarios illustrated are the following: very low and low GHG emissions, where emissions decline to net zero around or after the middle of the century, beyond which emissions are net negative; intermediate GHG emissions; high and very high emissions where they are double the current levels by 2100 and 2050, respectively. Even in the intermediate scenario, it is extremely likely that average warming will exceed 2°C near mid-century. The average global temperature is already 1.09°C higher than pre-industrial levels and CO2 concentration in the atmosphere is currently 410 ppm compared to 285 ppm in 1850.
•Over 200 experts working in several domains of climate have put the report together by assessing the evidence and the uncertainties. They express their level of confidence (a qualitative measure of the validity of the findings) ranging from very low to very high. They also assess likelihood (a quantitative measure of uncertainty in a finding) which is expressed probabilistically based on observations or modelling results.
Come hell or high water
•Close to 700 million people worldwide live along the coast and there continue to be plans to expand coastal cities. Therefore, understanding the risks involved from climate change and sea level rise in the 21st and 22nd centuries is crucial. Sea level rise will continue after emissions no longer increase, because oceans respond slowly to warming. The centennial-scale irreversibility of sea level rise has implications for the future even under the low emissions scenarios.
•Sea level rise occurs mainly due to the expansion of warm ocean waters, melting of glaciers on land, and the melting of ice sheets in Greenland and Antarctica. Global mean sea level (GMSL) rose by 0.2m between 1901 and 2018. The average rate of sea level rise was 1.3 mm/year (1901-1971) and rose to 3.7 mm/year (2006-2018). While sea level rise in the last century was mainly due to thermal expansion, glacier and ice sheet melt are now big contributors.
•In the low emissions scenario, GMSL is expected to be 0.19m in 2050 and 0.44m by 2100. In the very high emissions scenario, GMSL is expected to be about 0.23m in 2050 and 0.77m in 2100. These increases are relative to 1995-2014 and do not include uncertainties in ice sheet processes.
•Scientists rely on ice sheet models to estimate future glacier melt. While these models have improved over the years, there are shortcomings in the knowledge and representation of the physical processes.
Uncertainties
•Ice sheets can destabilise rapidly as the water gets warm (marine ice sheet instability or MISI). Ice cliffs can collapse swiftly in a related process, leading to rapid sea level rise; this is marine ice cliff instability (MICI). Such changes are difficult to model and MICI events are not included in the sea level projections mentioned above.
•As Siegert et al. indicate, changes in ice-ocean interactions can cause extensive and rapid sea level rise. This happens from mass loss of ice shelves (ice that flows into cold oceans while attached to the land), which may disintegrate suddenly. Under strong warming scenarios, ice shelves become vulnerable and lead to MISI. In the very high emissions scenario, with low confidence (and in the 17th-83rd percentile range), sea level rise can be as high as 1.61m by 2100.
•Using ice sheet models coupled with ocean models to create probabilistic scenarios for the future is therefore tricky. The models do not capture the abrupt and non-linear dynamics of changes that take place. The report has a high-end storyline that includes processes where there is uncertainty. The main uncertainty lies in ‘when’ rather than ‘if’ the high-end scenario occurs. Projections based on ‘structured expert judgments’ indicate that sea level rise as high as 2.3m by 2100 cannot be ruled out.
•According to the UN Environment Programme Emissions Gap Report, the world is heading for a temperature rise above 3°C this century, which is double the Paris Agreement aspiration. And there is deep uncertainty in sea level projections for warming above 3°C.
Vulnerability in India
•Communities along the coast in India are vulnerable to sea level rise and storms, which will become more intense and frequent. They will be accompanied by storm surges, heavy rain and flooding. Even the 0.1m to 0.2m rise expected along India in the next few decades can cause frequent coastal flooding. A speculator might think that if less than a metre sea level rise by 2100 is the likely scenario, they have another 60-80 years to continue developing infrastructure along the coast. That would not, however, be the right way to interpret the IPCC data.
•The uncertainty regarding a metre or more of sea level rise before 2100 is related to a lack of knowledge and inability to run models with the accuracy needed. Low confidence does not mean higher sea level rise findings are not to be trusted. In this case, the low confidence is from unknowns — poor data and difficulty representing these processes well in models. Ignoring the unknowns can prove dangerous.
•Adaptation to sea level rise must include a range of measures, along with coastal regulation, which should be stricter, not laxer, as it has become with each update of the Coastal Regulation Zone. The government should not insure or bail out speculators, coastal communities should be alerted in advance and protected during severe weather events, natural and other barriers should be considered in a limited manner to protect certain vulnerable areas, and retreat should be part of the adaptation strategies for some very low-lying areas.
📰 This judicial selection needs more than a tweak
The collegium system and the mysteries underlining its decision-making dilute the importance of the High Courts
•In recent weeks, the Supreme Court of India’s collegium has been busy. New judges have been appointed to the Court on its advice and long overdue vacancies have been filled up. Now, after a meeting held on September 16, the body has made proposals to alter the existing composition of various High Courts. When these recommendations are notified, new Chief Justices will be appointed to as many as eight different courts, five existing Chief Justices will swap positions with others, and a slew of puisne judges will be moved to new courts.
A need for transparency
•These recommendations are seen as reflective of a new and proactive collegium. A resolve for swiftness is fine as far as it goes; clearing up vacancies is a minimal requirement of a functioning system. What ought to concern us, though, is that long-standing apprehensions about the collegium’s operation remain unaddressed: specifically, its opacity and a lack of independent scrutiny of its decisions. These misgivings are usually seen in the context of a battle between the executive and the judiciary. Less evident is the effect that the failings have on the status of the High Courts. Today, even without express constitutional sanction, the collegium effectively exercises a power of supervision over each of the High Courts.
•For nearly two years, despite vacancies on the Bench, the collegium made no recommendations for appointments to the Supreme Court. The conjecture in the press was that this logjam owed to a reluctance amongst some of its members to elevate Justice Akil Kureshi to the Court. Indeed, it was only after a change in its composition that the panel recommended on August 17 a list of names for elevation. This list did not contain Justice Kureshi’s name.
•The perfunctory nature of the collegium’s resolutions means that we do not know the reasons for his exclusion. We also do not know why five Chief Justices, including Justice Kureshi, and several other puisne judges are now being transferred to different courts. This is not to suggest that these decisions are unfounded. It is possible that each of the choices made is predicated on administrative needs. But whatever the rationale, surely the public has a right to know.
The middle course
•Separation of powers is a bedrock principle of Indian constitutionalism. Inherent in that idea is the guarantee of an autonomous judiciary. To that end, the process of appointing and transferring judges assumes salience. But the question of how to strike a balance between the sovereign function of making appointments and the need to ensure an independent judiciary has long plagued the republic.
•The Constitution’s framers wrestled over the question for many days. Ultimately, they adopted what Dr. B.R. Ambedkar described as a “middle course”. That path stipulates the following: Judges to the Supreme Court are to be appointed by the President of India in consultation with the Chief Justice of India (CJI) and such other judges that he deems fit. Judges to the High Courts are to be appointed by the President in consultation with the CJI, the Governor of the State and the Chief Justice of that court. In the case of transfers, the President may move a judge from one High Court to another, after consulting the CJI.
Where primacy rests
•In this design, there is no mention of a “collegium”. But since 1993, when the Supreme Court rendered a ruling in the Second Judges Case, the word consultation has been interpreted to mean “concurrence”. What is more, that concurrence, the Court held there, ought to be secured not from the CJI alone, but from a body of judges that the judgment described as a “collegium”. Thus, the Court wound up creating a whole new process for making appointments and transfers and carved out a system where notional primacy came to rest in the top echelons of the judiciary.
•This procedure has since been clarified. The collegium for appointments to the Supreme Court and for transfers between High Courts now comprises the CJI and his four senior-most colleagues, and for appointments to the High Courts comprises the CJI and his two senior-most colleagues. When appointing judges to the High Courts, the collegium must also consult other senior judges on the Supreme Court who had previously served as judges of the High Court under consideration. All of this is contained in a “Memorandum of Procedure” (MoP). But there is, in fact, no actual guidance on how judges are to be selected.
The NJAC and after
•In 2015, Parliament sought to undo the labyrinthine procedures put in place by the Court through the 99th Constitutional Amendment. The National Judicial Appointments Commission (NJAC), that the law created, comprised members from the judiciary, the executive, and the lay-public. But the Court scuppered the efforts to replace the collegium and it held in the Fourth Judges Case that judicial primacy in making appointments and transfers was an essential feature of the Constitution. In other words, the Court held that a body that found no mention in the actual text of the Constitution had assumed a position so sacrosanct that it could not be touched even by a constitutional amendment.
•To be sure, the NJAC was far from perfect. There were legitimate fears that the commission might have resulted in the appointment of malleable judges. Therefore, it is plausible to argue that until a proper alternative is framed, the collegium represents the best solution; that allowing senior judges of the Supreme Court primacy in matters of appointments and transfers is the only practical way to guarantee the independence of the judiciary.
•But when the Court struck down the NJAC, it also promised to reform the existing system. Six years down the line those promises have been all but forgotten. A new MoP, for instance, is nowhere in sight. The considerations that must go into the procedure for selecting judges is left unexplained. The words “merit” and “diversity” are thrown around without any corresponding debates on what they, in fact, mean. Somehow, amidst all of this, we have arrived at a consensus that enveloping a veil over the process of selection is essential to judicial autonomy, and that there is no legitimate reason why the public ought to know how judges are chosen and transferred.
•In the case of the latest set of recommendations, five Chief Justices of High Courts have been reshuffled. Our constitutional scheme envisages no power of administrative superintendence in the Supreme Court over the High Courts. But when transfers are made routine, when the process of appointing Chief Justices to High Courts is shrouded in secrecy, a de facto system of oversight is put in place.
Getting back the shine
•It is clear that we have come a long way from a time when Chief Justices of High Courts declined invitations to the Supreme Court, because they valued the work that they were already entrusted with. Restoring High Courts to that position of prestige must be seen as essential to the process of building trust in our Constitution. Achieving this will no doubt require more than just a tweak in the process of appointments. But what is clear is that the present system and the mysteries underlining the decision-making only further dilute the High Courts’ prominence.
•When Chief Justices are moved around with alacrity, and when they are accorded tenures lasting a matter of months, at best, it is impossible for them to make any lasting changes. At some point we must take seriously the task of reforming the existing scheme, because the status quo is ultimately corrosive of the very institutions that it seeks to protect.
📰 Improving the economic game
Businesses can help meet the objectives of the Quad
•The Quad (Australia, Japan, India and the U.S.) meets in a landmark physical summit this week. The agenda for the Quad has widened — till now, it was largely focused on strengthening strategic and defence pillars. This should now bring industry into the dialogue process to advance the desired outcomes.
•The four nations are vibrant democracies and open economies. Three are developed countries and one is an emerging market. The Quad leaders met formally but virtually for the first time in March this year, and the joint statement captured the “spirit of the Quad”, stressing democratic values, while pledging to strengthen cooperation on the “defining challenges” of the times.
•On the economic side, challenges were identified as the economic and health impacts of COVID-19, cyberspace, critical technologies, and quality infrastructure investment. Working groups were set up on vaccines, critical and emerging technologies, and climate action.
•For India, each of the other three countries is a strategic partner, and bilateral and multilateral initiatives have been taken across multiple areas in different fora with each. The Quad syncs with India’s other regional programmes such as the Indo-Pacific Oceans’ Initiative and the Supply Chain Resilience Initiative.
•India’s total trade with the three Quad partners was over $108 billion in 2020-21, accounting for almost 16% of its total merchandise exports and imports. On the investment side, the U.S. is India’s second largest source of foreign direct investments, while Japan has a notable footprint in India’s major infrastructure projects. Inflows from Australia amount to less than a billion dollars, but the country has outlined a long-term strategy for economic engagement with India.
Business partnerships
•To advance their goals for a free, open and inclusive Indo-Pacific, the four participants of Quad must activate business partnerships meaningfully with definitive measures to align economic and strategic objectives.
•The first piece of the economic pillar is trade and investment. Joint efforts by all Quad countries can help to establish alternative manufacturing hubs and make regional supply chains more diversified. The SCRI with India, Australia and Japan aims to address vulnerabilities in existing supply chains that were exposed during the COVID-19 pandemic.
•Similarly, the Quad could consider adding a trade ministers’ interaction to its agenda which may engage in lowering trade barriers and boosting trade linkages among the partner countries as well as in the Indo-Pacific region. With India as a natural option for a China-Plus strategy, domestic policies to promote manufacturing and ease of doing business would help in the long-term success of trade cooperation.
•Quality infrastructure investment is another challenge highlighted in the statement. Innovative financing and public-private partnership models can enlarge the space for private industry and support public funds in the endeavour. Green infrastructure creation must be built into the template. A working group on this area could look into specific projects for the region that would best feed into trade objectives. As in the vaccine cooperation proposal, different partner countries could focus on various aspects of construction, drawing on their respective strengths.
•The third priority area for the Quad is climate change for which a working group has been set up. Cooperation on multiple dimensions of the climate challenge is proposed, including finance, emissions reduction, technology and capacity-building. With mitigation and adaptation as key aims, the involvement of industry to support governmental efforts would be critical.
•As a grouping of like-minded nations working on shared objectives in the Indo-Pacific region, the Quad is a formidable economic force that can deliver many gains on the identified pillars for the participating nations as well as the region. By adding businesses into its strategy mix, its initiatives would be further fortified and expanded. We hope that the governments would consider a forum for such private sector engagement.
📰 A flawed calculation of inflation
The current official inflation rate does not correctly measure price rise
•Inflation for the last four months has been worryingly high — wholesale price index (WPI) has been above 10% and consumer price index (CPI) crossed the 6% mark in June, which was above the Reserve Bank of India (RBI)’s tolerance band. This is happening at a time when demand has been down, unemployment has been high, many have lost incomes and poverty has aggravated. So, why is there high inflation and does the official data capture the real picture?
Data issues
•In April and May 2020, data on production and prices could not be collected due to the strict lockdown. Unlock had gradually started in June and July 2020 but normalcy had not returned. So, the current data on prices for April to July 2021 are not comparable with the same months of 2020. As such, the official inflation figures for these months in 2021 do not reflect the true picture.
•Anyway, a single number for inflation is an aggregate across different commodities and services — the price rise differs for different items of consumption. So, the single number is arrived at by assigning weights to different commodities and services. For WPI, the weights in production are used; for CPI, the consumption basket is used. But people are not homogenous. The consumption basket is vastly different for the poor, the middle classes, and the rich. Hence, the CPI is different for each of these classes and a composite index requires averaging the baskets. So, in a sense, it represents none of the categories.
•During lockdown and unlock in 2020, people largely consumed essentials. RBI data show that consumer confidence fell drastically from 105 in January 2020 to 55.5 by January 2021. That means, even when the economy started to grow officially, consumer confidence had not recovered. Employment and incomes were still down and according to one report, 230 million slipped below the poverty line. All this implies that the consumption basket for different sections of the population had changed. While the consumption pattern of the well-off sections may have changed little, the poor and middle classes, especially those who lost jobs and incomes, would have had to cut back on their consumption. Thus, the weights in the CPI would have changed and inflation required recalculation, but this has not been done. Consumer confidence was down to 48.6 in July 2021 due to the impact of the second wave of COVID-19.
•Additionally, inflation data under-represents services in the consumption basket. In production, services are about 55% of the GDP but have no representation in WPI and about 40% in CPI. We know that health costs shot up during the pandemic, but is this captured in inflation figures? Similarly, education costs soared with the requirement of mobile phones, laptops and Wi-Fi. Many services were not used. Eating out and travel, for instance, should have been factored out.
•In brief, the shock of lockdowns not only made data collection difficult but the consumption basket for calculating CPI should have been changed.
•Inflation pinches the pockets of the consumer. If the rate of inflation is 10%, then compared to the previous year a person has to spend 10% more to buy the same amount of things. If the person’s income also rises by 10%, inflation does not matter. But if the person’s income rises by less than 10%, their budget gets impacted adversely. For the middle classes, both consumption of less essential items and savings get reduced. But the poor, who hardly save, have to curtail essential consumption.
•In India, 94% work in the unorganised sector and mostly earn low incomes and have little savings. By definition, they cannot bargain for higher incomes as prices rise, and get hit by inflation. Further, due to lockdowns, the wages of many declined, both in the unorganised and organised sectors. This has impacted their family budgets.
•Consequently, demand has declined not only for non-essentials but even for essentials. In a vicious cycle, this is slowing down economic recovery and employment generation. Further, this impacts the government’s revenues and tends to increase the budgetary deficit. This puts pressure on the government to cut back budgetary expenditures, especially on the social sector. That aggravates poverty and reduces demand further. Thus, inflation in times of low demand and reduced incomes leads to a vicious cycle of slowing the economy and a growing crisis in the lives of the poor and unemployed, most of whom belong to the unorganised sector and some to the organised sector.
Factors underlying inflation
•The government has increased taxation of energy to raise resources. Since energy is used for all production, prices of all goods and services tend to rise and push up the rate of inflation. Further, this is an indirect tax, it is regressive and impacts the poor disproportionately more. It also makes the RBI’s task of controlling inflation difficult.
•The lockdowns disrupted supplies and that added to shortages and price rise. Prices of medicines and medical equipment rose dramatically. Prices of items of day-to-day consumption also rose. Fruits and vegetable prices rose since these items could not reach the urban markets. Their prices collapsed in rural areas but rose sharply in urban areas. Big business raised prices since competition from the unorganised sector decreased. And in spite of a lower wage bill, they raised prices as reflected in a sharp rise in the profits of the corporate sector.
•International factors have impacted prices. Most major economies have recovered and demand for inputs has increased while supplies have remained disrupted (like chips for automobiles). So, commodity and input prices have risen (like in the case of metals). Businesses claim increase in input costs underlies price rise. The weakening of the rupee also added to inflation.
•In brief, the current official inflation rate does not correctly measure price rise since the lockdown administered a shock to the economy. The method of calculating it needed modification. Many of the non-rich have suffered a double blow due to loss of income and rise in prices. This is slowing down the pickup in growth by curtailing demand.
