NEW INDIA'S INFLATION METRIC

The Karnataka election has uncovered new touch points of inflation, consistent with the growing aspirational quotient of India. EPISODE #125

Dear Reader,

A very Happy Monday to you.

Last week Karnataka voted in a new government. Going by the election manifestos of the two main political parties, the Bharatiya Janata Party and the Congress, one issues engaging voters was inflation. This is not surprising, given that inflation has accelerated in the last one year, forcing the Reserve Bank of India to raise interest rates in rapid succession.

What makes it interesting though is the touch point of inflation.

Traditionally, staple food items like “aloo” and “pyaj” (potatoes, onions), have been the trigger for public angst. This time, the political parties sensed that the touch point of inflation has changed. Consequently, one of electoral sops on offer was mitigation against rising prices of gas cylinders.

So this week I explore this new touch point of inflation and what it tells us about the new idea of India. Do read and share your feedback.

The cover picture, sourced from Press Information Bureau, showcases a clutch of women beneficiaries of the union government’s Ujjwala scheme—cooking gas for those living below the poverty line (BPL).

A big shoutout to Ranjini, Balesh, Gautam, Premasundaran and Vandana for your informed responses, kind appreciation and amplification of last week’s column. Once again, grateful for the conversation initiated by all you readers. Gratitude also to all those who responded on Twitter and Linkedin. 

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REDEFINING INFLATION

The just concluded elections in Karnataka, threw up an interesting trend. Both the national parties, the incumbent, Bharatiya Janata Party (BJP), and the challenger and eventual victor, the Congress, identified inflation as an electoral pain point.

Not surprising, given that inflation has been rampant in the post-covid phase; not just in India, but globally—in fact, in a relative sense the inflation trends in India are considerably more moderate than elsewhere; in Sri Lanka it touched 70%.

What is striking though is that both political parties zoomed in on a specific pain point for the electorate: cooking gas. Not, the traditional staples: aloo, pyaj.

This, made me sit up and take notice. Here, we are not talking about the urban or relatively well-off cohort. Instead, it also includes the so-called Below the Poverty Line (BPL) population. Fascinating because a decade ago more than half of the populace in general and almost the entire BPL cohort was not using LPG as their cooking fuel.

I went through the manifestos of both parties, BJP and Congress respectively, and pulled out their electoral promises to mitigate the fallout of inflation, including for the poor.

BJP:

..and Congress:

For the BJP, the first item on its offer list was three free gas cylinders every year for the BPL cohort. The Congress, chose to monetise this compensation as a payment of Rs2,000 every month to each and every woman heading a family.

The response of both parties is consistent with the feedback from the electorate, smarting from rising LPG prices. They have almost doubled to around Rs1,000 in the last two years. For instance regular price of LPG in February this year in Delhi was Rs 1,053, while the subsidised rate was Rs 853 per cylinder.

Remember that covid and the subsequent fallout was severely disruptive for the Indian economy. Particularly vulnerable was the contact economy, the largest employer of those at the bottom of the pyramid. The simultaneous rise in prices only further squeezed household budgets—already facing income loss.

Partial mitigation was provided by the massive free food grain programme pursued by the union government (and supplemented by most state governments) for 800 million people for the last two and a half years.

The response of political parties suggests that severely depleted household budgets discovered new pain points on inflation. This is consistent with their new aspirational quotient. And, like every other household, once they are used to a particular standard of consumption, in this case very basic, they are loath to let go. The electoral angst is therefore understandable.

Cause and Effect

What we are witnessing is the fallout of a structural makeover in the provision of basic material needs of the populace. There was a time, my generation would surely recall, where access to cooking gas was considered a privilege and a badge of entry into the middle class.

Personally, I recall growing up and seeing my mother cook on an earthen hearth using coal, dried cow dung as cooking fuel. It was only in the 1970s that our household managed to access cooking gas; among other things, it was visibly liberating for my mother—an experience that no doubt plays out in every household today.

From the turn of the Millennium the use of cooking gas has spread. However, its introduction to those at the bottom of the pyramid went into a war footing with the launch of Ujjwala 2.0 in 2016.

It is a scheme rolled out by the union government, with the objective of making “clean cooking fuels such as LPG available to the rural and deprived households which were otherwise using traditional cooking fuels such as firewood, coal, cowdung cakes etc.”

In Karnataka, we see that the point of inflection was 2019, when the BJP government assumed power in the state. Check out the graphic below:

The growth in LPG connections for the poor almost doubled from 17.69 lakh in 2018 to 31.51 lakh in the following year. To be sure roll out had sufficient momentum even before the BJP assumed power. As on 1 January this year the LPG connections for the poor aggregated 37.59 lakh connections.

Overall, including the BPL connections rolled out under Ujjwala, there are about 1.7 crore LPG connections in Karnataka. In other words there is saturation in access to LPG. In turn, this means that there has been a fundamental shift in household consumption behaviour.

While the cause for this makeover is the mission mode strategy for adoption of LPG, the effect is that it has left households vulnerable to rising prices—especially since the BJP-led National Democratic Alliance (NDA) has enabled pass through (partial if not full) of any increase in international prices of petroleum products.

This is true even for subsidised cooking gas—wherein the consumer pays the market price and receives the Rs200 subsidy directly into their account; though, some states like Rajasthan, further subsidise cooking gas for the poor. As pointed out earlier, prices of cooking gas have more than doubled in the last two years.

To be sure I am not suggesting that the comprehensive defeat for the BJP in Karnataka was solely because of prices of cooking gas. It was a contributory factor no doubt. More importantly, it is a manifestation of the consequences of growing aspirations.

The problem for political parties is that since cooking gas supplies are driven predominantly by state-owned companies, there is a perception that LPG prices can be controlled. As a result, failure to keep prices in check results in the electorate holding the incumbent government accountable.

Aspirational India

While politicians will struggle to address these growing expectations—as we witnessed in the just concluded election—this is also a manifestation of the trading up of India’s aspirational quotient.

For long denied basic material needs, their aspirations were suppressed. Not any longer. I have written about this previously so will just provide a summary of how the basic material needs have improved, rather dramatically in the last decade. In short, India has bridged staggering material deficits in little over a decade.

As on 1 February this year:

• 11.7 crore households have been equipped with toilets;

• 9.6 crore LPG connections;

• 47.8 crore PM Jan Dhan bank accounts;

• Insurance cover for 44.6 crore persons under PM Suraksha Bima and PM Jeevan Jyoti Yojana.

Clearly, an aspirational India has discovered the means of empowerment. Understandably, like any consumer, they will react if these benefits are denied. Worse, made unaffordable—as in the case of cooking gas.

Politicians have been quick to sense this. Exactly why most political parties now offer a basic set of sops including free electricity, transport for women, food grains, over and above allowances for the unemployed and so on. There is a method to the populist madness.

Frankly, the challenge of addressing growing aspirations is a good problem to have. Especially, for a country, who till recently was addressing the challenge of extreme poverty. It is an affirmation of the trading up of India, a trend first visible in the 2011 Census of India.

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Till we meet again next week, stay safe.