New Delhi: Poor set of data with the government could have led to low projections on inflation, which could actually be more than the provisional estimate of 7.41% for the week ended 29 March, says Abhijit Sen, member, Planning Commission.
“For example, the January steel prices were incorporated only in the March index,” said Sen, and cautioned: “There is a certain amount of suddenness in this inflation which was absent in last year’s inflation.”
According to Sen, the Consumer Price Index, or CPI, which captures prices at the retail level as opposed to the Wholesale Price Index, or WPI, will see a pick up. “CPI will overtake WPI by March, when the March data for CPI becomes available,” Sen said.
He was responding to a statement made by former adviser to the Prime Minister, S. Narayan at a seminar on inflation hosted by think tank Observer Research Economic Foundation.
The number released on Friday was provisional and it will be updated after two months. There was a gap of 0.67% between the provisional and latest available final data for the week ended 2 February. Thus, provisionally, inflation was 4.07% for that week. The actual number, it now emerges, is 4.74%.
Sen cautioned that the government needs to keep a watch on prices of mustard and rapeseed which are about to hit the market now, and where a poor crop is expected. He, however, was upbeat on wheat, the main rabi crop. “We are better protected in wheat as we have been importing it. Wheat prices are not related to inflation; rather to a decline in production. Only in March it has increased with other commodities. Rice is what needs to be watched out for.”
Sen heads a working group which is working on revising and broadening the scope of existing 435-item WPI, which uses 1993-94 as the base year. To be called the Producer Price Index (PPI), the index will have a base year of 2004-05 and will extend to 2,000 products.
The group of economists and political representatives who took part in the discussion suggested different policy measures to combat inflation. Most speakers, however, agreed it was a supply-side and cost-push inflation and not caused by excess demand. There was general agreement that the government could have responded six months ago as the price rise in the fuel and mineral raw material component was 20-25% by January.
Sen also cautioned that since prices in India were substantially lower than in the rest of the world, it was creating opportunity for arbitrage and speculation.
B.B. Bhattacharya, vice-chancellor, Jawaharlal Nehru University, Delhi, was more optimistic and said a good monsoon should be able to take care of a large part of inflation. “There is no need to curb money supply but it is important to dampen expectatio-ns. We should use a part of the forex reserves to buy essential commodities and distribute them at subsidized prices.”
Arjun Sengupta, an independent member of Parliament, said 7-8% inflation was not high and if the government took tight measures, such as controlling money supply, it would impact investor confidence considerably. “However, I feel the government should have resorted to better imports in essential commodities in 2006 itself when the sign of inflation first began to show,” he added.
Jagdish Shettigar, convenor, economic cell of the Bharatiya Janata Party, said the government should have taken note of the price rise two years back when buffer stocks started declining because of procurement failure. “We need to modify the minimum support prices (MSP) and probably introduce a band which will allow the government to raise MSP in order to match prices being offered by private parties. Besides, the government should compel private parties to contribute some amount they procure to the central pool compulsorily,” he said.
Shettigar also said the current price increase was largely led by food articles which could have been avoided by better management of food procurement and distribution. “It is a supply-side problem. Only the agriculture and food minister could have helped the situation. Unfortunately, his interest is elsewhere.”
He added that the increase in petroleum prices was not a factor because increased costs were not being transferred to the market.