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Inflation down but reforms needed to boost demand

March 19, 2009

FOOD-PRICES/FAOThe latest inflation data for early March may please authorities ahead of national elections. Political leaders will trumpet the fact that the government’s efforts have yielded results and the demon of inflation has finally been tamed.

But the early March number throws up some serious concerns. It signifies that the Indian economy has entered a phase of deflation for a temporary period. Demand in the economy is extremely subdued and fresh efforts are needed to restore confidence.

Farm crop output is likely to be robust and this may help in moderating prices but the problems with regards to supply bottlenecks have hardly been addressed. Ports, roads and reforms in agriculture must therefore be the focus of the new government which assumes power after the April-May elections.  Past experience has shown that a tardy monsoon can upset calculations overnight.

There is very little time to lose and massive reforms across all sectors are needed to get the economy moving again. Much will depend on the government which is voted in after the elections.

Such low level of wholesale price inflation, the most widely watched inflation measure in India, throws up another worry. Real interest rates are still high and authorities must nudge banks to lower them to push demand and restore confidence in the economy.

The central bank and the government have taken timely action but now it is up to the commercial banks INDIA/and firms to take the benefits of the stimulus packages to the consumers.

There is still room for more stimulus measures and the new government will have to immediately hit the ground running to sustain a 6-7 percent growth and protect jobs in a country which hardly has any social security.

The early March inflation data is a wake-up call for policymakers and the political class to embrace reforms much more than before.

Comments

It is clear that ruling party wants to approach the election day on zero inflation.The government had injected a virus of recession in the economy and has succeeded in their aim.

An average voter is more concerned with CPI rather than WPI.He prefers to see that standard cost of living should be affordable.The consumer prices,especially of food articles have been rising unabated.Incomes have been diminishing.This means that citizens have had less money to spend.This starts to affect demand for goods and services.The end result is a recession.

WPI this week is 0.44%.Any economist would prefer to have repo rate matching this figure.There is no justification to keep PLR as high as 12.75-13.25%.Manufacturers will have to build in high cost of borrowing in selling prices.High prices do not stimulate demand.

The government itself needs to introduce a discipline in its fiscal management.It should learn to budget its expenses.A large deficit puts more burden on tax payers,and further reduces their capacity to save and invest.

We have not seen any fresh capital formation after last year’s R-Power IPO.Where has all the money gone?We need to think of reforms in capital market,atleast that there is enforcement of tranparency standards and guillible investors are not mislead.

Posted by A.Kapoor | Report as abusive
 

Hi,

I think WPI, 0.44%, for the week is declared or published in reverse order. Ideally, it should be 44.0%. Please check once again and declare the right figures of Inflation.

The loose sugar which was Rs. 15 per KG now I baught at Rs. 24 per KG. The packed branded sugar which was earlier Rs. 20 per KG now it is Rs. 30-35 per KG. The similar effect is on all eatable items which are necessary to live. Except POTATO the amount of every Veg, Pulses, Rice etc. have increased like a GIANT.

Now, will you please any one say where India stands in terms of Inflation. Is it to make fool of people?

Posted by Tejinder | Report as abusive
 

What will be the inflation next week…????

Posted by Adi | Report as abusive
 

Weekly inflation is now a matter of jugglery by the government’s statisticians.It has lost a meaning.

Posted by A.Kapoor | Report as abusive
 

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