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BW Businessworld

Inflation? Really?

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Forty-five-year-old L. Rita has not shelved her holiday plans. This summer, her family – husband, two children and Rita – are going to spend time in Egypt and Greece. Yes, she has seen the headlines about the soaring inflation and rampaging food prices in the newspapers. But Inflation seems a bit of an abstract concept for this Kolkatan housewife whose husband is a senior corporate executive.
The finance minister is worried about the spiralling inflation. Assorted bureaucrats are feverishly working on steps to contain the runaway prices. There is news that the government is planning to crackdown on hoarders. Exports of some key items are being temporarily barred. And the Reserve Bank of India has hiked the credit reserve ratio in a bid to tame the inflationary demon. But among a fairly large number of urban households – especially those that have benefitted from high salaries fuelled by the economic boom of the past few years – inflation is merely something you read about in the newspapers and hear about in television programmes. It does not touch them personally.





In one of the fashionable neighbourhoods in Delhi, 39-year-old Geeta Vohra, a real estate consultant, wonders what the fuss is all about. "I still go out for shopping and I still continue eating out. Look at the malls and the restaurants, they are always packed. Do you see any sign of inflation?" she asks. Yashu Vaidya, a housewife, who would rather be called a domestic engineer, admits that she has noticed that prices of all sorts of items of daily consumption has risen. But "I really can't say that it has affected my life to such an extent that I need to curtail some expenses," she says.
Ten years ago, the runaway inflation of the kind that we are seeing now would have affected practically every Indian, barring a minuscule proportion of the super rich. The economic boom of the past few years though has swelled the proportions of the people who are untouched by 7 per cent-plus inflationary rates. They are still a minority – but as surveys by NCAER and MRUC and others show, the number of people in the upper most income layers has grown the most, followed by the next layer. In other terms, the ranks of the very rich and the fairly rich are growingok faster than ever. And this is one category that doesn't feel too much of a pinch even when prices of daily commodities rise.
Between 1996-97 and 2000-02, per capita income on an aggregate basis grew by a compunded annual rate of 3;2 per cent. But high-income on households grew much, much faster - by about 20 per cent year after year - between 1995-96 and 1998-99, acording to the National Council for Applied Economic Research (NCAER).

Says Rama Bijapurkar, a marketing consultant, "Upper middle-in households grew by 10 per cent on a compunded annual growth basis during that period. In urban India, the trend is even more pronounced."
"The higher income strata do not get impacted by the kind of inflation we are seeing today,” points out D.K. Joshi, chief economist, Crisil. “If you talk to the top echelons, look at what percentage of their income they spend on food. It is very little. They spend a lot of money eating out but the basic food bill is not very high and I think as you go down the income strata, you keep spending larger and larger percentage of your income on food," he points out, explaining why price rise of food grains and other essentials is not really touching the lifestyles of the corporate achievers and bigger businessmen.
Madan Sabnavis, chief economist, NCDEX, agrees with Joshi. "The people in the Rs 10 lakh-plus annual income barely feel the inflation and the families with incomes of more than Rs 50 lakh per annum are not even aware of the inflation," he says. It is only the poor and the middle classes who bear the brunt of shooting vegetable and food grain prices.





In Bangalore, Shoma Bakre, a consultant and also co-founder and managing partner of EmPower Research, feels pretty much the same. "Inflation is a reality but is has not affected my life or my family's lives," she says. "We have not made any adjustments to our purchase patterns or budgets for day to day expenses. Even as an employer, what I see is that the salaries in the private sector, especially in the BPO/KPO sector, have been keeping pace with the inflation, and employees in these sectors have not felt the need to alter their lifestyles as a result of inflation," says Bakre.
For Luna Bezbaruah, homemaker and a part-time teacher in Kolkata, it's not so much the monthly household budget that "seems to be getting stretched a bit", but the problem with maids and driver wanting pay hikes. "You can't really blame them, can you?" she says. "I mean, just think how they are going to manage if potatoes cost Rs 10 a kilo!"
Many are still demanding class and comfort. For Laxmi Maisnam, a software professional in Pune, eating out, shopping and travelling is an integral part of her lifestyle. All this is largely unchanged even now. Prod further and she mulls on cutting down impulse buying.
Not all economists agree with Joshi or Sabnavis. As Suchita Mehta, an economist with Standard Chartered Bank points out, the rise in food prices may affect only the poor and the middle class, and not bother the upper echelons too much, but the latter also feel the heat in other ways. Rising cement and steel prices, for instance, points out Mehta, translates to higher costs of cars and house mortgages. "They might not be as affected as the lower income categories but they do feel the impact," she says.
Omkar Goswami, founder of CERG Advisory, a firm that specialises in corporate consulting and economic advisory services, agrees with Mehta. "Everyone is affected. Some people have the income and, therefore, have the cushion and others have less income and, therefore. do not have the cushion. Relatively speaking, food inflation affects the poor more than the rich, this is commonsense. It's an absurd argument that the rich are not affected at all," he says.
True. But even if the rich are affected, they are not feeling the pinch at least yet. They might if the inflation remains out of control for months together. But at the moment, they are not planning to clamp down on their spending just yet.

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