New Delhi, Jan 28: Over the past few weeks inflation rate has been steadily on the rise. Around November inflation had touched a 11-year low of 3.2 per cent and it shot up to 5.73 per cent towards the week ended January 10. However, most economists felt that inflation was lower compared to the country's ``historical averages''.Planning Commission member G Thimmaiah said the RBI and the finance ministry had been managing the situation well. He said inflation going either below four per cent or shooting above seven per cent were both not good for the Indian economy. The safest level of inflation for the Indian conditions was between 4 and 7 per cent and as such crossing 5 per cent was not of much concern, Thimmaiah added.
Moreover, the new government that will take charge after the general elections will have to take corrective steps during the budget-making process if the inflation shoots beyond six or seven per cent, the Planning Commission member said. ``Surprisingly, actual inflation was lower by aboutone per cent than all official assumptions'', according to Thimmaiah.
Inflation will come down because of the RBI rollback on cash reserve ratio (CRR) and prime lending rate (PLR) regimes which will be contracting the credit flow in the market. When the industrial sector was facing a sectoral recession there was an apprehension that along with recession prices may go down further leading to a general recession. However, this has not happened, he said.
What has contributed to higher inflation was the untimely rains which not only damaged standing crops but also jeopardised the rabi crop prospects. Another factor that contributed to higher inflation was the Voluntary Disclosure of Income Scheme (VDIS) through which a lot of black money turned white and got into open circulation, Thimmaiah said. Considering all this the present higher inflation was a short-term problem which will be taken care of by the corrective measures of RBI.
Wholesale price index (WPI) not being the proper indicator of the actualposition in shops and market places, can lead to some two-three per cent gap as compared with the consumer price index (CPI) and as such five plus per cent inflation rate was nothing to be apprehensive about, Thimmaiah said.
Agricultural economics research centre director Prem Vashishtha said price fluctuations at retail level were not generally reflected in the inflation rate though the greater pinch was from the retail sector. ``Poorer the region, higher are the prices of essential commodities'', he said. This was because of various factors including higher transportation cost and improper distribution network like poorly managed ration shops.
What was needed to be done to reduce the inflation burden on poor was, therefore, to strengthen the essentials' distribution network, Prem Vashishtha suggested. The problem of poor people consuming less of commodities because of their poor buying power needed to be addressed by streamlining the supply mechanism, he said.
As for weightage given to variouscommodities in the price indices, Vashishtha said when petroleum and electronics sectors started showing overbearing presence in the economy, the weightage did get revised some years back. But the weightage revision cannot be done too often, he added.
Delhi School of Economics director Suresh Tendulkar said ``there was nothing inherently wrong with wholesale price index per se''. In any case, WPI would not reflect consumer prices. The matter, however, could not be commented upon without closer examination of facts and figures in proper perspective of the issue, he said.
Institute of Economic Growth Professor K Krishnamurthi said ``I don't take an alarmistic view'' of the present inflation rate. He said 10 per cent inflation was the ``politically tolerable'' level of inflation in India and the present five plus per cent inflation was understandable in view of the fact that money supply (M3) was running around 17 per cent which was higher than last year's 16 per cent.
The higher money supply had to beviewed in the context of lower growth in real gross domestic product, he said. The condition of industrial and export sectors having not done well has contributed to one per cent lower GDP growth expectations at around five or six per cent, K Krishnamurthi said.
In fact, inflation rate was lower compared to the ``historic average'' annual level of around seven per cent, the IEG Professor said and added that this low percentage was due to the overall slack in demand. He refused to subscribe to the overall slack in demand situation being dubbed as ``recession''.
Inflation had to be looked with various factors like seasonal fluctuations of prices of commodities including vegetables and other food items, manufactures and so on in the background. Comparing the point-to-point increase or decrease in indices in short terms and trying to calculate the inflation rate as a trend was not the right thing to do, Krishnamurthi said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
