No sign of deflation

The fall in the rate of inflation in terms of wholesale price index to below 1% in the first week of March, 2009 does not signal the onset of deflation and “could be the result of the high base effect of inflation” which stood at 7.78 per cent during the corresponding week of March 2008, the Cabinet Secretary, KM Chandrasekhar said in New Delhi on Thursday.

Speaking to mediapersons after inaugurating the National Conference on ‘Common Service Centres: The Change Agents’ organised jointly by the Department of Information Technology, Ministry of Communications & IT and the apex industry body, FICCI Chandrasekhar said: “I do not see any signs of deflation, as demand for certain core sectors like steel, cement and automobiles is picking as also rural demand. The inflation trend clearly shows that the stimulus packages rolled out by the government are starting to show results,” adding that only those sectors heavily dependent on overseas demand would take time to pick up.

The two-day conference will deliberate on ‘Augmenting agricultural services through CSCs’, ‘e-Governance services’, ‘Addressing healthcare challenges in rural India through CSCs’, ‘Rural development and financial inclusion’, ‘Increasing access to education’, ‘Innovative and new services ‘, and ‘Infrastructure framework for CSCs’.

Reacting to the latest wholesale price inflation figure released by the government, the President of another apex industry body Assocham, Sajjan Jindal, in a press statement said that it was heartening to note that it had slipped to 0.44% but its reflection on primary food articles was yet to noticed because the weightage of inflation on them was still between 6-7%. He said that the reduced inflation had shown its impact on prices of metals especially copper, zinc, aluminium and even in steel and cement and also manufactured goods whose prices had come down.

“The only concern is that the common man has yet to stand beneficiary on this record inflation rate but it will take some time to reduce the weightage of inflation on prices of essential commodities. The Assocham foresees the next impact of reduced inflation on further relaxation of interest rates,” he said hoping that the Reserve Bank of India would take a cue from it and might as well take a few more monetary measures so that India witnesses one more interest cuts to boost demand and infuse liquidity in the market.

The FICCI President, Harsh Pati Singhania said, “Inflation rate has been coming down over time and these latest numbers are not entirely unexpected. However, the fact that WPI has come down to 0.44% on a year on year basis despite prices of food articles going up by 7.3% on a year-on-year basis shows that inflation in case of other products has declined significantly. The high base effect also has a role to play in this case as inflation stood at 7.78% during the corresponding week of the previous year”

He further said, “Looking at the weekly variation in the price indices, we see that prices of primary articles, both food and non-food products, have indeed moderated. The fall in prices in the case of primary articles is largely supply driven as reports from different parts of the country show that market arrivals for different agricultural products have been reasonably good”.

Within the primary articles segment, it is the non-food articles whose prices have seen a substantial decline by 2.1%. Prices of food articles have also shown a decline though the fall here is a moderate 0.7%.

“Given that the Rabi crop is expected to be good, we expect that the price line in case of primary articles would remain under check for at least the next two months”, said Singhania.

“In view of the receding inflation levels, FICCI would once again urge the RBI to further ease the monetary policy to aid the industrial sector. Further, in view of the evolving situation the banks must shed their conservative stance with regard to lending to corporates and consumers. In fact the RBI and the government should embolden and incentivise the banks to direct resources for productive purposes,” he added.

“What is particularly worrisome is that given the present inflation rate and the interest rates being charged by banks, the real rate of interest in the economy is at double digit levels. The banks must lower the lending rates to single digit levels if economic activity is to be stimulated,” said Singhania.

The Cabinet Secretary said his scheduled meeting with bankers this month end would review the credit disbursal situation and suggest ways to increase the liquidity flow to the industry for stimulating demand and investments. In this context, he said, the public sector banks have been far more active in the disbursal of credit to industry and hoped that the private banks would play their role in bringing down lending rates.

Asked whether there was any possibility for the Reserve Bank of India to cut the CRR further, the Cabinet Secretary said, “It is for the RBI to decide what measures it would want to take”.

Earlier, while inaugurating the conference, the Cabinet Secretary pointed out that the Common Service Centres (CSCs) initiative was envisaged not only as an instrument, but for catalysing and achieving inclusive growth and rural empowerment as well. The initiative, he said, aimed at providing a broad-based and inclusive platform for empowering the citizens while at the same time enabling the government, private and social to align their social and commercial goals to harness opportunities at the bottom of the pyramid.

He said, the network of 100,000 CSCs, linked by broadband and created on an innovative public-private partnership (PPP) format, was expected to emerge on its completion by year-end, as a key governance, development and empowerment platform whereby bthe potential of rural India and citizens could be gainfully harnessed.

He said the scheme was likely to generate over 400,000 direct jobs opportunities, as well as indirect employment avenues of a like number in rural India. The scheme was structured to promote rural entrepreneurship. By creating appropriate support structures that enable demand driven services as well as capacity building and training, rural entrepreneurs can be empowered to as change agents for rapid socio-economic change in rural India.

The inaugural session of the conference was also addressed by the Secretary, Department of IT; Jainder Singh, Special Secretary, Department of IT, R Chandrasekhar and Joint Secretary, Department of IT, Shankar Aggarwal.