Editorial 1: Corporate power and Indian inflation
Context
- A new explanation has been proposed for the recent trajectory of inflation in India, with implications for its control. 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. This he ascribes to the pricing power of five big corporates (‘Big 5’). The narrative has received wide coverage in the financial press.
- ‘Big 5’, according to Viral Acharya, consists of Reliance Group, Tata Group, Aditya Birla Group, Adani Group, and Bharti Telecom.
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Defining ‘core inflation’
- Core inflation is the change in the costs of goods and services, but it does not include those from the food and energy sectors. It excludes these items because their prices are much more volatile.
- It is most often calculated using the consumer price index (CPI), which is a measure of prices for goods and services.
The factor of food price inflation
- Why corporate pricing power is driving inflation in India currently:
1. Divergence between inflation rates in India and the rest of the world: After the global financial crisis of 2008, Indian inflation surged due to a surge in food price inflation in India, driven by negative agricultural shocks and high procurement price hikes.
2. Elevated core inflation is based on an observation of a somewhat short time period as underlined by corporate power: It is true that while wholesale price inflation (WPI) has eased very considerably recently (2023), consumer price (CPI) inflation has not.
3. The Big 5 conglomerates have a high presence in retail trade: This is evident while attributing elevated core inflation in consumer prices, as wholesale prices fall, to pricing power of the Big 5.
4. Comparing WP inflation with CP inflation, whether headline or core, is a mismatch: The commodity basket corresponding to CP includes such items as housing, health, education, recreation and personal care which, naturally, do not enter the wholesale price index.
5. Doubting the claim that corporate pricing power is driving current inflation in India: As per data of the first three quarters of the financial year that just ended, in all of them, over 75% of the direct contribution to inflation is by sectors in which the Big 5 are unlikely to be represented in a big way, the contribution of food products alone being close to 50% in most time periods.
There is pricing power
- Clearly, it is the rising price of food that is driving current inflation in India. None of this is to suggest that corporate pricing power does not exist or that it is not relevant for inflation. However, the question is the extent to which corporate power is driving overall inflation in India currently, beyond its obvious role in elevating the price level.
- Core inflation leaves out the inflation in food and fuel prices on grounds that these prices tend to fluctuate, evening out the changes, and thus not requiring a policy response. But this is a flawed assumption in the context of India’s economy.
The current inflation control strategy
- In India, food prices have only risen, and in recent years their rate of inflation has been very high. For all the ‘reforms’ since 1991, the real price of food, i.e., its price relative to the general price level, has risen considerably. So to measure inflation without considering the price of food is to exclude what matters most to the public, as opposed to central bankers.
- India’s inflation control strategy is currently restricted to using the interest rate to dampen aggregate demand. It absolves the policymaker from addressing the challenge of ensuring the production of food at affordable prices.
Conclusion:
- Monetary policy has a limited role in controlling inflation driven by food (and fuel). Instead, we have to ensure adequate supply of such necessary items in the country.
Editorial 2: Explained | The rules for recognition as national and State party
Context:
- Ahead of the upcoming Karnataka Assembly elections , the Arvind Kejriwal-led Aam Aadmi Party (AAP) received a shot in the arm from the Election Commission of India, as the poll body accorded it the status of a national party on April 10.
- Meanwhile, the Trinamool Congress (TMC), the Communist Party of India (CPI), and the Nationalist Congress Party (NCP) lost their national party status. The EC also revoked the recognition of some parties as State parties, while giving fresh recognition in two States to others.
How does a party get recognised as a national party?
- The Election Commission reviews the poll performance of recognised parties after every State Assembly election or general election to the Lok Sabha.
- The rules for recognition as a national party are specified by the Commission in para 6B of the Election Symbols (Reservation and Allotment) Order, 1968.
- A party becomes eligible to be accorded national status if it fulfil one of the following conditions:
- if it is recognised as a State party in at least 4 states
- if it secures 6% of the total votes polled in 4 States in the last Lok Sabha or Assembly elections, and gets 4 of its members elected to the Lok Sabha
- If it wins 2% of seats in the Lok Sabha from at least three different States.
- Besides this, the Symbols Order of 1968 was amended in 2016 to give parties one additional “pass over”. As per this amendment, in force since 2014, if a national or State party fails to fulfil the eligibility criteria in the next general elections or the assembly election after the election in which it received recognition, it will continue to be recognised as a national or State party, meaning it will not be stripped of its status. However, whether it will continue to be recognised after any subsequent election would again have to be determined by the eligibility criteria.
What are the criteria to be recognised as a State party?
- For recognition as a State party, it has to secure at least 6% of the valid votes polled and two seats in Assembly polls or one in Lok Sabha polls.
- There are three other alternatives for eligibility-
- In General Elections or Legislative Assembly elections, the party has to win 3% of seats in the legislative assembly of the State (subject to a minimum of 3 seats).
- In a Lok Sabha General Election, the party has to win 1 Lok Sabha seat for every 25 Lok Sabha seats allotted for the State, or
- In a General Election to Lok Sabha or Legislative Assembly, the party has to poll 8% of votes in a State.
What are the benefits of recognition as national and State parties?
- A recognised party (national or state) has the right to certain privileges like allocation of the party symbols, provision of time for political broadcasts on the state-owned television and radio stations and access to electoral rolls.
- These parties are allowed to have 40 “star campaigners” during the time of elections (the registered-unrecognised parties are allowed to have 20 “star campaigners”).
- Every national party is allotted a symbol exclusively reserved for its use throughout the country. Even in the states where it is not contesting elections.
- For a state party, the allotted symbol is exclusively reserved for its use in the state/s in which it is so recognised.
Election Commission of India (ECI)
- It is an autonomous constitutional authority responsible for administering Union and State election processes in India.
- The body administers elections to the Lok Sabha, Rajya Sabha, and State Legislative Assemblies in India, and the offices of the President and Vice President in the country.
Structure of ECI:
- Originally the commission had only one election commissioner but after the Election Commissioner Amendment Act 1989, it was made a multi-member body.
- ECI consists of the Chief Election Commissioner (CEC) and such number of other election commissioners, if any, as the President may from time-to-time fix.
- Presently, it consists of the CEC and 2 Election Commissioners.
Appointment & Tenure of Commissioners:
- The President appoints CEC and Election Commissioners.
- They have a fixed tenure of 6 years or up to the age of 65 years, whichever is earlier.
- They enjoy the same status and receive salary and perks as available to Judges of the Supreme Court (SC) of India.
Removal:
- They can resign anytime or can also be removed before the expiry of their term. The CEC can be removed from office only through a process of removal similar to that of a SC judge by Parliament.