Rising prices, profits are ravaging everything, growth a mirage
Most companies are raising prices in response to the global supply shortage following the Russian-Ukrainian war
Hyperinflation – rapid, excessive and uncontrollable general price increases – has become a serious problem, with Prime Minister Narendra Modi addressing states for driving down fuel prices, supposedly one of the main reasons for the
Soaring corporate profits are another reason for rising prices. According to Mercilius Investment Managers, the top 20 companies continue to post 70% profits and higher product prices in a supposedly sluggish market. Unilever, Suzuki Motor and JSW Steel are all in the game to raise prices.
Most companies are raising their prices in response to the global supply shortage following the Russian-Ukrainian war. He needs a probe.
Despite government efforts, with the exception of Gujarat and Karnataka, few states are known to have granted tax relief on petroleum products. This is becoming a political issue with the opposition joining the spat and the finance ministry announcing that Rs 78,704 crore of states’ cess shares have yet to be transferred.
This despite Brent falling to $104 a barrel. For the past two years or so, the benefits of unprecedented low crude prices have not been passed on to consumers. Fuel prices have risen 31% in eight years.
Even gas pumps that are supposed to earn higher commissions as fuel prices rise pay nearly double the cost of tankers. In addition, the increase in toll taxes makes the goods even more expensive. Tolls also affect interregional and localized trade. The country sees an opportunity in Ukraine’s situation to sell food grains globally at a higher price. Although this may ensure higher remuneration for farmers, there is a flip side. This could push up domestic prices. The Prime Minister recently said that the government is approaching the World Trade Organization to facilitate sales of Indian food grains in the global market. The WTO has still not set its conditions. The situation in Ukraine has created a vacuum as the biggest suppliers are unable to meet global demand. Ukraine exported about 1.7 million tonnes of grain last month, according to consultant ProZerno. The most recent volume is still only around half of March 2020. Markets brace for further upheaval as deliveries from Ukraine and Russia – which together account for around a quarter of global trade cereals – are becoming more and more complicated and are raising the specter of food shortages.
A new market could gradually open up to India. Its ramifications are too early to be studied. India has been overwhelmed with food grains. About 80 crore people are receiving free food distributions worth more than 2 lakh crore annually for the past two years. While India is the second largest wheat producer with a share of around 14.14% of global production in 2020, it accounted for less than 1% of global wheat exports. The export potential could be great, but with corporate dominance, dream prices may elude farmers. Internal market ramifications can cast a shadow over the political spectrum.
The shortage of coal, its higher prices and its dependence on thermal energy increase the cost of electricity per unit from `6 to more than `10 or more. This would make the use of electricity for trains, vehicles, farms and industry expensive.
Inflation is eating up volumes at big companies like Hindustan Unilever (HUL), says CEO Sanjiv Mehta, but he has no answer for its high operating margins of 20%, down from the previous 24%. Rising prices “rationalise” consumer spending. High commodity prices are now being offset by higher product prices. While the company tries to shift costs, consumers are thrifty and settle for low-priced products. Yet, it makes profits of 2203 crores or 8.5%. This testifies that high profits are the bane.
The consumer buys only what he needs from the FMCG. Many companies are forecasting high earnings declines. Smart consumer spending is hitting big businesses in both urban and rural areas. Rising prices penalize household consumption. General market trends may improve if profits are rationalized.
The United Nations Conference on Trade and Development finds that despite everything, e-commerce is growing. However, he does not consider this healthy. Total retail sales during the pandemic rose to 19% in 2020 from 16% in 2019. This has hurt least developed countries as well as small businesses.
Modi must set up a committee of experts and show firmness to ensure that the country returns to the magic
phase of low inflation for concerted growth.
(The author is a seasoned journalist. Opinions expressed are personal.)