Search the Internet          Tips  Sites: Finance, Investment

Inflation plummets, but is the economy in fine fettle?

Domestic recession came to the rescue of Finance Minister Yashwant Sinha and RBI Governor Bimal Jalan as it, along with other factors, pulled down the inflation to a historic two decade low of 2.21 per cent in the post-reform period.

Though Sinha may have downplayed the market fears, the movement in the retail price segment is not all that rosy as All India Consumer Price Index (for industrial, rural, agricultural or urban non-manual labour) stood above Wholesale Price Index (WPI), although there cannot be any divergence 'in-principle'.

Although the base for WPI had been changed, it had not been changed for the CPI for the last 20 years, during which the consumption pattern itself had changed to a great extent.

Belying the expectations of many including Brettonwoods Sisters - World Bank and IMF - and other leading thinktanks in and outside India, who had predicted an over five per cent rate till the end of this fiscal, commodity prices went on downward spree in the last phase of 2001.

It is to be noted that on a year-to-year basis, the latest reported inflation stood in sharp contrast to a near nine per cent mark in the previous year.

An average household, especially in the formal sector, might seem rejoicing over falling commodity prices but the worrisome problem had been the price rise for the inelastic primary commodities including fruits and vegetables.

Economists have attributed the southward movement of prices to fall in consumer demand arising out of lack of purchasing power.

Even as inflation kept on falling, the prices of fruits and vegetables and other commodities like eggs, meat, fish and coconut oil rose, making it difficult for people to make both ends meet.

"We know nothing about the change in the price level. It might have fallen to lowest-ever figure, but we find purses going empty within the first few hours of getting the hard-earned income," rues Rani, a maidservant, who is in the unorganised sector that employs over 70 per cent of the labour force in the country.

Going one step ahead to the average Class-IV employees in the government/quasi-government and private sector, the views are not much different, except for the fact that they kept a watch on the inflation since it mattered in the calculation of dearness allowance.

In this context, the contention of the credit-rating agency ICRA holds good that the annualised inflation in primary foods, other than foodgrains, had been rising sharply, showing an annualised acceleration of 14 per cent.

2001: The Year That Was…
Money
Business News

Tell us what you think of this report