Exclusive | Govt defends record wholesale price rise, says states also to be blamed for soaring fuel prices

(Image: PTI)

High inflation is again dominating the discourse at a time when India is slowly emerging from the second wave of COVID-19. As it becomes a political talking point, the government has started attempts to push across its own views.

The Commerce Department has sent out a communication to industry bodies and export promotion councils, defending the spiralling inflation. It stresses that states haven't rationalised taxes on petrol and diesel, which is necessary for controlling inflation. Moneycontrol has reviewed the communication.

Interestingly, it also argues that since ‘movement of people has been restricted due to regional lockdowns, the increase in fuel prices will have a limited impact on people’s pockets'.

Wholesale inflation in the country scaled record levels for the second consecutive month in May, with prices rising by a steep 12.94 percent.

This was mostly due to the constant rise in the cost of fuel, including petrol, LPG and high-speed diesel, which percolated down to the economy.

Measured by the Wholesale Price Index (WPI), data for which was released on June 14, the pace of rise in fuel prices has nearly doubled for three straight months now. It hit 37 percent in May, up from 2.03 percent in February. This led to a rise in logistics charges, and, ultimately, a steep 10.8 percent rise in the prices of manufactured items.

The government has argued that the latest inflation numbers are excessively high simply because there is an anomaly owing to the low base effect. A year ago, the nationwide lockdown and a slew of local restrictions had brought down consumption demand, and, as a result, deflation emerged, with prices falling by 3.37 percent in May 2020.

Compared against that, the latest prices would look high on paper, a senior official said. "Additionally, the month over month change in WPI shows just 0.76 percent rise in inflation," he said.

Another concurrent trend the government has latched on to is that global commodity prices have jumped in 2021. “Prices of crude petroleum and other fuels had crashed in May 2020 due to lockdowns across the globe. On the other hand, oil and petrochemical prices are massively surging now," an official said.

The rise in prices of crude petroleum, mineral oils such as petrol, diesel, naphtha and furnace oil had recently risen because of global factors, he added.

Petrol and diesel prices have continued to rise. As of June 14, petrol prices in Delhi and Mumbai stood at Rs 96.41 and Rs 102.5, respectively. As compared to this, prices stood at Rs 76.26 and Rs 83.17, respectively, in both cities exactly a year back.

The communication has also flagged positive measures taken by the government amidst the rising fuel prices. The railways has been able to support logistics efforts across the country in a cost-efficient manner, it said.

This has been primarily because a significant portion of the network has been electrified, thereby making them insensitive to rising diesel prices. “Additionally, the railways have expanded its footprint across the nation, providing greater connectivity for goods and people in an economical fashion,” it said.

It also pointed out that food inflation has remained under control, thereby limiting pressure on the vulnerable section. Food inflation had continued to strengthen over the past 6 months, with inflation peaking at 4.9 percent in April, before falling to 4.3 percent in May.

However, the latest dip in wholesale inflation seems to have not dampened the rise of retail prices when consumers go shopping for food. The latest Consumer Price Index data showed food inflation was 5 percent in May, up from 1.96 percent in April as prices of fruits, eggs, edible oils and pulses hot up.