• Some people are attributing elevated core inflation in consumer prices in India, as wholesale prices fall, to pricing power of the Big 5 companies.
  • It is observed that, unlike in the West where it abated with COVID­19, core inflation remains elevated in India.
  • ‘Core’ inflation is all­ commodity inflation stripped of the inflation of food and fuel prices. 

  • The factor of food price inflation 
  • The claim that corporate pricing power is driving inflation in India currently is wrong. Let’s see through five points.
  • First, a divergence between inflation rates in India and the rest of the world is not new. 
  • After the global financial crisis of 2008, Indian inflation surged, reaching levels higher than in its epicentre, namely the economies of the United States and the United Kingdom.
  • This was due to a surge in food price inflation in India, driven by negative agricultural shocks and high procurement price hikes. 
  • There is evidence that in India, food price inflation affects core inflation. 
  • This is not surprising after all, for food price inflation enters costs of the non­agricultural sector. 
  • Second, the argument that corporate power underlies elevated core inflation is based on an observation of a somewhat short time period. 
  • Third, attributing elevated core inflation in consumer prices, as wholesale prices fall, to pricing power of the Big 5 assumes that these conglomerates have a high presence in retail trade. 
  • On balance, one would expect their presence is greater in the manufacturing and infrastructure sectors than in retail. 
  • It may be noted that their presence in the economy itself may not be so high.
  • They account for 12% of non­ financial sector sales. This does not signal high pricing power. 

The Big 5 businesses include Mukesh Ambani-helmed Reliance Group, Tata Group, Aditya Birla Group, Adani Group, and Bharti Telecom

  • Fourth, to compare WP inflation with CP inflation, whether headline or core, is to acquiesce in 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.
  • Finally, In theory, corporates can drive inflation if concentration rises continuously and if they come to dominate the economy, in this case retail trade. 
  • That we have not reached there yet in India is implied by the fact that the sectors in which the Big 5 are most represented account for less than 25% of the consumer price index. 

As a democracy, India should guard against the potential use of countervailing power by any body pursuing a private interest, whether economic or social, and irrespective of its consequences for inflation.