{"id":237791,"date":"2023-04-13T20:19:03","date_gmt":"2023-04-13T14:49:03","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=237791"},"modified":"2023-04-17T16:40:05","modified_gmt":"2023-04-17T11:10:05","slug":"corporate-power-and-indian-inflation","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/corporate-power-and-indian-inflation\/","title":{"rendered":"Corporate power and Indian inflation"},"content":{"rendered":"\n

Source-<\/strong> The post is based on the article \u201cCorporate power and Indian inflation\u201d<\/strong> published in \u201cThe Hindu\u201d<\/strong> on 13th April 2023.<\/strong><\/p>\n

Syllabus: <\/strong>GS3- India economy<\/p>\n

Relevance<\/strong>– Issues related to inflation<\/p>\n

News<\/strong>– The former Deputy Governor of the Reserve Bank of India, Viral Acharya, is reported to have observed that unlike in the West where it abated with COVID-19, core inflation remains elevated in India. He ascribed it to the pricing power of five big corporations.<\/p>\n

What are counter arguments against Viral Acharya that core inflation in India is due to pricing power of big five companies?<\/strong><\/h2>\n

First<\/strong>, a divergence between inflation rates in India and the rest of the world is not new. After the global financial crisis<\/strong> of 2008, Indian inflation surged. It reached levels higher than the economies of the United States and the United Kingdom.<\/p>\n

This was due to a surge in food price inflation<\/strong> in India, driven by negative agricultural shocks. <\/strong>Food-price inflation tends to feed into core inflatio<\/strong>n. So, it cannot be concluded that Indian inflation is higher than in the West today due to corporate pricing power.<\/p>\n

There is evidence that in India, food price inflation affects core inflation. <\/strong><\/p>\n

Second,<\/strong> the argument that corporate power plays a role in elevated core inflation<\/strong> is based on an observation of a short time period. Wholesale price inflation was considerably low in the six months preceding March 2023, but consumer price inflation was not.<\/p>\n

A mismatch between WP and CP inflations<\/strong> is not new. In 2021-22, WP inflation surged by 12 percentage points, but CP inflation actually declined.<\/p>\n

So, the maintenance of high price increases by firms in the retail sector even with low wholesale price inflation in 2022-23 may just be a compensating mechanism.<\/strong><\/p>\n

Third,<\/strong> attributing elevated core inflation in consumer prices to pricing power of the Big 5 assumes that these conglomerates have a high presence in retail trade<\/strong>. Their presence is greater in the manufacturing and infrastructure sectors than in retail. It may be noted that their presence in the economy itself may not be so high.<\/p>\n

Fourth,<\/strong> to compare WP inflation with CPI inflation is not the right thing. The commodity basket of CPI<\/strong> is different from the wholesale price index. So, we would be comparing apples with oranges here.<\/p>\n

The claim that corporate pricing power<\/strong> is driving current inflation in India has no solid basis. For the first three quarters of the financial year, over 75% of the direct contribution to inflation<\/strong> is by sectors where the Big 5 presentation is low.<\/p>\n

What can be concluded ultimately about core inflation in India?<\/strong><\/h2>\n

Corporate pricing power<\/strong> does exist. Pricing power in Indian industry and that the rate of profit<\/strong> in India is high in a global comparison.<\/p>\n

However, the question is the extent to which corporate power is driving overall inflation in India beyond its obvious role in elevating the price level.<\/p>\n

In theory, corporations can drive inflation if concentration rises continuously<\/strong> and if they come to dominate the economy. India is not in that position. But industrial concentration<\/strong> is most likely rising in India.<\/p>\n","protected":false},"excerpt":{"rendered":"

Source- The post is based on the article \u201cCorporate power and Indian inflation\u201d published in \u201cThe Hindu\u201d on 13th April 2023. Syllabus: GS3- India economy Relevance– Issues related to inflation News– The former Deputy Governor of the Reserve Bank of India, Viral Acharya, is reported to have observed that unlike in the West where it… Continue reading Corporate power and Indian inflation<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,3337,10498],"class_list":["post-237791","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-inflation","tag-the-hindu","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/237791","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=237791"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/237791\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=237791"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=237791"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=237791"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}