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Story so far: After seeing inflation in my dream as a fire-spewing dragon, I visit the market to find the menace in the form of high prices for essentials, affecting not only consumers but also shopkeepers. Retired people are hurt more, I realise, because their savings yield has been dropping while outflows, soaring. Is inflation getting out of our hands, I wonder?

Episode 91

It was one of those drab thoughts I had left you with, last week: Inflation. It's not something one likes to remember when somebody is paying the bill. So, it is not fashionable to complain about it; or, even if one did grumble, for the sake of keeping up with the Joneses, it is not unusual not to do anything to contain it. It was, therefore, thrilling to get a few responses on the subject.

"Dear Swati, inflation has been in the news for a long time," writes B. Subramanian. "This time, that too, when it kept soaring everybody began to speak about it. Although a layman doesn't know about its impact (because he saves hardly, besides the truth is that it is hard to save for him), when it comes to a pensioner who dwells and runs his retired life with the interest from savings, there is financial hurt.

"Besides eating up savings, inflation also affects the prices of commodities. Often, it doesn't have any significant immediate effect but as days pass by, it gets larger than life." True, it's a slow poison.

"It is amusing that even for a rupee hike in the vegetable market or Rs 5 hike in the fruit market, shopkeepers cite the Iraq war as reason. But prices go up because of fuel price hikes; vendor's procurement costs soar. However, other vendors whose costs are lower because they get the supplies from nearby, start selling at a higher price to exploit the situation. That seems to be no different from stealing off a burning house." We would never know whose costs are low and whose, high. "To handle inflation, I have been adopting a technique. I have purchased four wooden cartons and planted five vegetable plants in them. After a month's time, I get vegetables from them, which is enough for my family. This has a dual impact. First, cost of vegetables is less despite inflationary pressure or fuel price hike. Second, I get good exercise early morning, contributing to a relaxed mind, rather than my having to spend for going to a gym. This is an idea that can be followed by pensioners and retired persons. They can pass their time usefully and effect savings. If they have a bigger garden, they can plant more vegetables and even earn by selling the surplus." I'm already looking around for wooden cartons!

"Dear Swati, inflation means too much money chasing too few goods. I don't know how many people are aware about the method of calculating the rate of inflation. Sometimes we find that though prices are rising the rate of inflation does not rise. When there is a change in the fuel prices, the increase in inflation is visible because of the cascading effect it has on all goods," says a mail from M. Radhakrishnan.

"The current inflationary trend is because of a rise in fuel costs due to a rise in crude oil price, than because of government policies. All of us are helpless in this situation. Past records shows that inflation has always been there. Fortunately, that trend was stopped in the last few years, resulting in reduction of interest rates. People who are hit badly by high inflation are fixed-income earners and exporters (because of non-competitiveness following high prices).

"Inflation figures reflect only the rise/fall in the prices of goods. In Chennai, most families spend a minimum of Rs 1,000 for water, which will not be accounted for in the inflation index." That's right. "We fixed-income earners always face the uphill task of matching expenses with income earned. Even when there is no inflation, our necessities are going to increase. Therefore, it's a way of life that has to be endured." Sounds quite resigned.

"Well pensioners should feel fortunate that they belong to a small but privileged class. In India around 80 per cent of the working class are in the unorganised sector and are not lucky enough to get pension. On the other hand, they are destined to work until they are physically fit. Further, pensioners should realise that the rate of interest has two components, viz., real rate and rate of inflation. The reduction in interest rate is because of a reduction in the inflation rate. Simply put, if pensioners get a higher rate of interest for their deposits, then they have to shell out more for their living." What you're saying is `count your blessings'.

"Yes, inflation is eroding savings," writes Kamal Anil Kapadia from Mumbai. "The much-affected people would be the retired ones. Isn't it funny that on the one side banks reduce the interest rate on deposits and, on the other, prices of goods and services are increasing. One year's net return from the best product — the retirement GoI scheme — is 9 per cent; and tax on most of services is at 10.2 per cent. Actually the price of goods and services should move in such way that inflation is in control but that's not happening in India! We need to think about it since nobody wants to cut his share of profit. The final burden rests with the consumers." You're right, Kamal, it's everybody's problem.

"Hi Swati, the salaried are the most vulnerable to inflation. Businesspersons and entrepreneurs have scope for booking expenses against income. Not so for the salaried," writes Anil Kumar Pillai. "Recently the government has tried to curb inflation by cutting Excise and Custom duties. This will only make matters worse in the long run because fiscal deficit is bound to rise. Whatever measures were proposed in the recent Budget to bring down fiscal deficit goes for a toss." Looks like you're more worried than the Finance Minister.

"It seems rise in inflation is more due to external factors such as crude oil prices. A long-term solution to this would be to concentrate on domestic exploration and to have efficient energy saving schemes. Other solutions suggested by pundits for the middle class are to invest in stocks that could lead to higher returns. But past experience does not endorse such hopes. Therefore, the majority still keeps away from shares and prefer low-risk investments such as FDs, mutual funds and so on. "Inflation can be beaten by increasing the purchasing power of the people. And this can be accomplished through higher income generation which, in turn, can be boosted by encouraging business/investment." If only the formula can work as fast as a series of electrical switches!

********

The transport strike affected my company's despatches badly. Inventory piled up, and even as we were paying interest for our working capital, a few of our customers cancelled the orders. Therefore, it came as great relief that the strike was called off.

But on the following morning, Gupta called me early in the day and said, "Swati, one of our loads is held up at the check-post. Will you go up and see what the problem is?" I said yes and rushed to the spot. Yes, the vehicle number that Gupta told me over the phone `7865' was there and I asked the driver Chattar Bhai to show me the papers. They were all in order. "What's the problem?" I asked, puzzled. "You see, memsahib," said Chattar. "Strike was over only yesterday and there is this long queue of lorries to get past checking." I asked, "So?" Chattar said, without batting his eyelids, "He wants mamool." I felt disgusted.

After about an hour I was returning to the city; Chattar's truck had resumed its journey and the required greasing had been done for the officials who stood in the way for no valid reason. I asked myself if I should have fought against this extortion, even if it meant only Rs 500, refusing to pay anything beyond what is due. When our highways and check-posts are manned frequently by palms that itch for `something' and levy a covert tax on truckers, does it make sense to levy service tax on goods transport agency? Send in your thoughts by Friday.

Swati_CA@hotmail.com

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