Food Inflation Burning Holes in Pocket of “Aam Adami”

Majority of households’ real spending power on non-food articles fell by over 65% in the three months of the year with steep rise in prices of fruits & vegetables and essential commodities like milk, eggs, meat and fish etc., according to the ASSOCHAM data.

Over 88% of middle income group (MIG) and lower income group (LIG) find difficult to manage the household budget and squeezing families’ finances to the lowest level due to uncertainty rains according to a country-wide survey conducted by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) under the aegis of ASSOCHAM Social Development Foundation (ASDF).

The fear of bad monsoon has suddenly hiked the vegetables and fruits prices of 300% from the farm to your dining table, said the ASSOCHAM survey on “Rising prices widen gap between the rich and the poor” in which over 5,000 employees took part.

The survey was conducted in a period of two months beginning June and July 2012 in major places like Delhi-NCR, Mumbai, Kolkata, Chennai, Ahmedabad, Hyderabad, Pune, Chandigarh, Dehradun, Bangalore etc. Delhi-NCR Ranks first followed by Mumbai (2nd), Bangalore (3rd), Ahmedabad (4th) and Kolkata (5th). About 500 employees from the different sectors were covered by the survey from each city on an average.

Releasing finding of the Survey, Secretary General, Mr. D S Rawat said, “In an average salary structure of middle income group is Rs. 35,000/- per month, the amount available for discretionary spending is not more than Rs. 15,000/- as an average employee shells out over Rs. 6,000-8,000 on housing loan or rent, 5,000 loan on cars/ two wheelers, 7,000-10,000 on education cost and FMCG. The share of Insurance premia including health insurance is over Rs. 3,000-5,000 each month as employees need to ensure themselves including their families as their social security net in it.”

Over 89% of the respondent said that the price of every commodity has gone up. There is no control over vegetables prices and milk rate has doubled in the last five years.

The upward spiraling inflation has pinched all the middle class families across the country. However, 73% of the respondents said that their take home currently is not more than 30% of their total package and left over amount of 15,000 is spent for food, commuting costs, utilities, doctor  and education bills, disclose the survey. Around 72% of working parents said that it is very difficult to afford two children in this scenario with steep rise in the inflation.

In metropolitan cities, couple work together earning about 35,000 to 45,000 with a take-home pay of roughly 20,000 a month after taxes and some deductions for EMI, medical insurance, car, home loan etc. Even couples in full-time employment are ‘really struggling’ hard to live. 78% of the respondent said that it is all the pressures that are adding up to hurt household’s budget.

Over 82% of the respondent belonging to the middle class spent for basic necessities like essential commodity, fuel cost, home loan, education, insurance premia toward the future of their children as their top priorities, followed by lifestyle goods.

High inflation is putting lots of pressure on companies not just in terms of high input cost, but with demands for higher salary hikes. 72% of the respondent said that “the salary hike last year it was not in sync with the cost of living which has gone up by almost 40-50 per cent. Right from vegetables to petrol prices to house rent, everything has gone up so much and savings are also reduced to half.

The survey also reveals that another major item of essential consumption has also increased in price that of drugs and medicines which has gone up, obviously impacts upon the entire population, but especially the bottom half of the population which may find it extremely difficult.

“While consumption attitudes may be severely affected in Middle class and lower middle class families, life will continue as usual for the high income groups. High income group seems to have been least affected as there is nearly no change in their spending habits”, added Mr. Rawat.

So, despite a record food production of 252 million ton this year, prices stay high and food inflation is still around 10.5 percent, more or less where it was a year ago. It also mentioned that the food prices for rural population rose 9.87 per cent and for urban population it was 10.18 percent. For vegetables the prices rise was 24.55% weight age of 5.44% in CPI. In the case of milk where India is a net exporter, prices rose 14. 9%. Prices of eggs, meat and fish rose up to 9.95%.

Mr. Rawat also added, among the food products that saw sharp rises were edible oil. The impacts on edible oils are largely on account of the depreciation in the exchange rate, since India is a net importer of the commodity. The rupee has fallen by 8.5% this fiscal year, 2012-13, so far translating into higher import costs of edible oil. Edible oil prices rose 17.64% in April this year. Prices of others like sesame, groundnut and sunflower oil are rising so fast they will soon go out of reach of the middle class.

To maintain a basic diet, many households are forced to increase their food expenditures at the expense of non food expenditures.

 In 2008-2009, households spent on average 40 percent of their total consumption expenditures on food followed by 14 percent on rent and 6-7 percent each on transport and clothes. Expenditures on medical care (5 percent) and education (3 percent) were relatively low.

Middle income households (MIH) allocate 40 percent of their expenditure on food and one fifth on rent. In Lower income households (LIG), food accounts for 52 percent expenditure, while only 10 percent is allocated for housing. These shares hide huge differences in absolute levels of expenditure between middle and lower income groups.

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