Shyam Singh Rana squats on the dirt floor of a makeshift hut and smiles wryly as he talks about his new business venture.
Fuelled by surging demand for goods, government duties and drought, runaway inflation is rocking India.
The unwelcome trend has forced the wizened sugar-cane farmer to oversee a rudimentary factory that produces jaggery – unrefined sweet patty cakes that are coveted by many for their rich taste and health benefits.
Retail sugar prices have surged 55 per cent in India in the past year, but prices paid by sugar mills to Indian farmers for raw sugar cane have increased by only 25 per cent. So instead of selling his sugar cane directly to the mills this year, Mr. Rana is using his crop and those of his fellow farmers in the village of Daha, in the state of Uttar Pradesh, to make jaggery.
The sugar mills are promising to raise prices soon but Mr. Rana and the other farmers are making jaggery because they need money now to cover the rising cost of food and other basic necessities.
“I have been a farmer for 36 years. I have never seen inflation like this,” he says.
Before, if there was inflation, there would be some relief. Some products would be more expensive but the rest of the products would be cheaper. Now the basic products like food have all gone up so high,” Mr. Rana said.
The worry is that India's inflation problem could crop up in the rest of Asia and, subsequently, the global economy, which is struggling to emerge from the worst financial crisis since the Great Depression. Central banks have responded to the crisis by keeping lending rates artificially low, triggering concern that the excess liquidity will cause rapid price increases and derail the recovery.
Soaring prices threaten not only India's economic comeback but also its position (alongside China) as a world leader in the global financial revival. China and India's continued strong demand for natural resources and consumer products helped keep the global economy afloat through the downturn. But in China, worries about rising prices are beginning to take root following more than a year of extremely loose lending policies.
Chinese consumer price inflation hit 2.7 per cent in February, a surprise spike from January's 1.5-per-cent level. Beijing is targeting consumer price inflation at around 3 per cent this year but may be hard-pressed to keep prices in check unless it raises lending rates or allows China's currency to appreciate.
Even in Canada, inflation worries are starting to emerge in the aftermath of record low interest rates. Canada's consumer price index (which strips out volatile food and gasoline prices) accelerated to 2.1 per cent in February from a year ago – the highest level in 14 months and slightly above the Bank of Canada's inflation target of 2 per cent.
India managed to largely sidestep the global financial crisis last year and along with other emerging market economies has been a key driver powering the global turnaround.
But there is a dark side to India's impressive economic performance as Mr. Rana and other Indians are enduring a staggering annual food inflation rate that recently spiked to almost 18 per cent.
It's not just sugar prices that are skyrocketing. Prices for rice, wheat, milk, vegetables and pulses are soaring too. Now there is concern that the ballooning food inflation is spilling over into other areas. India's overall inflation rate jumped to 9.89 per cent in February as a government decision to raise duties on diesel and gasoline sent fuel prices surging higher. Consumer prices are up more than 16 per cent from a year ago, giving India the world's second highest inflation rate according to Bloomberg, ahead of only Venezuela on a list of 78 countries. Despite weak loan growth, India's central bank recently ordered a surprise increase in lending rates in hopes of controlling rising prices.
