PRICES MAY RISE BUT NOT INFLATION AND PRICE INDICES

March 14, 2004

PRICES MAY RISE BUT NOT INFLATION AND PRICE INDICES
AN EFFECTIVE POLITICAL TOOL AGAINST COMMON MAN

Any one who goes to purchase something in the market knows it very well that prices of all commodities except a few have been on the rise, but we see in the media reports that the government has succeeded in controlling the prices and the rate of inflation to a very low level, and it would give much elbow room to the Country to develop faster than ever before. It's a dirty trick of the government that made the intelligentsia in its favour on the price front despite the common man's grief who are caught between dwindling income and steep price rise.

The trick was played on the people by the BJP-led NDA government from April 1, 2000 to contain the dissatisfaction of the people on the price front. It may not be out of place to mention here that in the earlier elections of the state assemblies of Delhi, Rajasthan and Madhya Pradesh the BJP had to suffer badly for the steep hike in onion prices in particular and all commodities in general. Media at that time were presenting a grim picture of the rising price indices and inflation. It's a great surprise that media changed its outlook with the implementation of the government trick which showed a low level of price indices and inflation only through paper work. They now praise the government for low price indices and low rate of inflation which does not give a real picture of the price situation. In the recent weeks, the rate of inflation and the prices of commodities in general have again been on the rise. It resulted into government concern for political reasons, and therefore the same trick is being planned. India is set to have a revised series of the Wholesale Price Index to replace the existing one.

To understand this trick, we have to understand the earlier one, when the older series of the Wholesale Price Index was replaced for the present one. The replaced WPI series was in existence since July 1989 having 1981-82 as base year. We do not have any National Price Policy, and therefore it was not under the power of the government to contain the price rise. There was a tremendous inflationary pressure on our economy. The Government was being criticized for that. Therefore, the government simply changed the base year to 1993-94 and reduced the weightage for primary articles from 32.30 to 22.02.

The reasons for this reduction of weightage for the primary articles are obvious when we see the inflationary pressures just before the 1998 state assembly elections , result of which triggered the idea of tampering with the existing indexing system. Economic Suvey 1998-99 said , “ Wholesale price of primary articles increased by 16.3 per cent and accounted for over 60 per cent rise of the annual inflation of 8.84 per cent by the last week of September 1998. …At the time of peak inflation (8.84 per cent in end September), the major share of the annual growth in inflation was contributed by food articles (47 per cent ). The main culprit for the massive price rise in this group was vegetables whose price had increased by 136.6 per cent from a year ago. Prices of potato and onion were higher by 250.9 per cent and 409.6 per cent .” During that period prices of pulses were higher by 11 per cent , edible oils by 22.7 per cent, and mustard oil by 59 per cent . That is why weightage to the primary articles which includes food grains, pulses , fruits and vegetables, milk, eggs , fish , meat , condiments and spices, other food articles like tea, coffee, non-food articles like raw cotton , raw jute, oil seeds , sugarcane etc were reduced.

In the new series of WPI, the weightage of fuel, power, light &lubricants was increased from 10.66 per cent to 14.23 per cent while it was increased from 57.04 per cent to 63.75 per cent for the manufactured products including food products , edible oils , beverage, tobacco and textiles.

When the new series of WPI introduced in April 1, 2000, it brought the desired result. Without going through the rigorous exercise for making prices under control, the government brought down the rate of inflation , WPI and Consumer Price Index(CPI) only through paper works.

So, for the last few years we have been under the impression that the Annual rate of inflation based on Wholsale Price index was brought down from 10.9 per cent of 1994-95 to merely below 4 per cent last year. Annual rate of inflation at the end of February 28 this year was 5.32 per cent and the WPI is 180 points. We tend to forget the trick played lowering them down and are all for praise of this government as if it has kept the prices under control.
But this trick was being felt out dated within three years of its implementation. Prices of commodities more useful for common man are on the rise , which are pushing the rate of inflation up. Government has therefore set up a working group under the Chairmanship of Prof Abhijit Sen of the Jawaharlal Nehru University, for the revision of the current series of WPI. According to the sources , the Working group would go through the issues relating to weightage for the commodities and the base year. It was claimed that the country would implement the new series based on best international practices.

Can our Price Indices and rate of inflation reflect the real price situation prevailing in the country? Can we make the Price Indices equitable for all classes of workers or employees ? Can we make at least the same base year for industrial, agricultural , and urban non-manual employees ? Can we make any effective price control mechanism rather than implementing such new series? These are few question needing urgent answers. New series may show in their data the prices and inflation under control, but the miseries of the people can only be reduced by reduction in prices in real terms for commodities used by common consumers. One can only wish that the Working group will do justice to the people, when it submits its report.