Nothing to cheer

In a perplexing turn of events, the rate of inflation has turned negative. According to the latest data on wholesale price index (WPI) for the week ended June 6, 2009, the country’s rate of inflation is -1.61 per cent. This means that the latest WPI index is lower than the same week previous year, indicating an overall drop in the prices for a basket of goods. This is the first time the WPI has turned negative ever since the WPI series started in 1995. Some economists are worried that the Indian economy is moving into deflation with uncertain consequences.

The negative inflation, however, does not provide much solace to the consumers who find their monthly household expenses still going up, though at a slower rate. This is also substantiated by the fact that despite the WPI falling since the beginning of 2009, the consumer price index (CPI), which tracks prices of products and commodities more relevant to the consumers, continued to rule much higher. At the end of April 2009, for example, when WPI was 0.77 per cent, CPI was 8.70 per cent. The rate inflation, as indicated by WPI, has turned negative mainly because of the drop in prices of petrol, diesel and cooking gas compared to the levels a year ago when the international oil prices were ruling high. Similarly, prices of a whole lot of commodities like steel, cement, copper, rubber have softened owing to the global recession. But, the rising prices of food products like cereals, pulses, edible oil, vegetables, fruits etc, continue to hurt the general public. It is, therefore, essential to keep the prices of agricultural products and commodities under check. This needs long term planning and integrated action. 

This can happen only through improvement in irrigation, using high-yielding variety of seeds and the land reforms. At the same time, distribution network for farm products must improve vastly. It is well known that a majority of our agricultural products do not fetch remunerative prices to the farmers while the middlemen pocket most of the surplus. Similarly, if steel or cement prices are to remain within a limit, the capacity and production of both have to go up. We must also have a long term plan to lower the incidence of ‘imported inflation’ as the oil prices have again started inching up. When international prices of oil or steel go up, they impact domestic prices, so we need to find out ways and means to mitigate or absorb such an impact.

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