Monday, August 25, 2008

The pulls & pressures on prices

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ECONOMY Can the declining wholesale price index beat the rise in crude oil?

If the Indian bourses have been displaying their resilience to withstand the onslaught of global downturn, then the inflations rates, too, are not lagging far behind in re-enforcing the confidence in Indian economy.

The most refreshing news in the pre-Diwali session was that the wholesale price index was at 2।97% for the week ended Oct. 27, down from 3.02% in the previous week. But the big question, which continues to haunt the economic strategists is – for how long will the inflation levels sustain at below 3-4% mark? With the international crude oil prices hovering close to $100 a barrel & the government vacillating on passing the burden on to the consumers – the prospects are not very bright. Sooner or later the oil prices in the country will go up pushing the cost of commodities to higher levels. With the food, fertilizer & oil subsidies slated to touch $25 billion this year, Prime Minister Manmohan Singh has already hinted at restructuring the subsidy regime, “so that only the really needy and the poor benefit from them and leakages are stopped.” With these thoughts floating in the policy making circles, it is not difficult to presume that something surely is in the offing on oil price front. It is increasing becoming difficult for government to sustain current subsidy levels both on kerosene and cooking gas. The short honeymoon with below 3% inflation rate is likely to end soon, making Goddess Lakshmi vanish from Indian homes after Diwali.


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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam Chaudhuri (Renowned Management Guru and Economist).


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