Govt worried on rising inflation

NEW DELHI: Continued rise in the inflation rate���8.1% (provisional) for the week ending May 17���has left the finance minister P Chidambaram worried as measures to contain inflation have not made an impact. Inflation rate can be expected to move further north with the government considering raising petrol and diesel prices. Till now, the consumer has been shielded from the impact of soaring crude prices, which is at $126 a barrel.

And if last weekend���s results from Karnataka are not indication enough, the unabated price rise will continue to be a major concern for the UPA government with elections coming up in five more states. For the Opposition, the government���s inability to tame prices is an issue it can make a meal of as was the case in Karnataka.

The UPA government and its finance minister have more cause for worry. The actual rate of inflation is much higher than the provisional figure of 8.1%, this will be evident two months later when the figures are revised. ���These inflation figures are suspect, inflation rate crossed 8.1% in mid-March. Provisional figures do not convey the real rate, the actual inflation rate would be closer to 10%,��� former finance minister and senior BJP leader Yashwant Sinha said.

In the week ending March 15, inflation was put at 6.68%, which was revised to 8.02%���134 basis points higher. The difference between the provisional and actual rates averaged around 20 basis points till October 2007, but has been on the rise since.

The assertion that actual inflation is much higher than the provisional figures is borne out by the fact that for the five weeks, from January 5 to February 2, the average revision in the index was 57 basis points. For the week ending February 2, the revision was of the order of 67 basis points, pushing up inflation from the provisional figure of 4.07% to 4.74%. The difference between provisional and actual figures was as high as 186 basis points for the week ending March 8���provisional figure put inflation at 5.92%, which was revised to 7.78%.

It would then appear that the government���s efforts at taming inflation have not yielded any results. Instead, what has happened is that a shadow has been cast on India���s growth story. Though India beat forecasts and achieved a growth of 8.8% in the three months to March 31 from a year earlier, it was the country���s weakest pace of economic growth since 2005.

���All the steps that the government has taken have proved to be a failure, as it failed to slow down inflation. Instead of focusing on the supply side, the government took steps to control the monetary side, which has impacted growth,��� Mr Sinha said.

Given that the Indian consumer has been shielded from the crude price shock, it is prices of essential commodities that registered the increase. The current inflation rate of 8.1% is on account of rising prices of fruits and vegetables, pulses, spices and some industrial fuels. Prices of fish marine increased by 6%, fruits and vegetables by 3%, moong 2% and spices by 1%.

Among the industrial fuel, furnace oil became expensive by 3%, light diesel oil 2% and coke 31%. Despite the ban imposed by the government on export of skimmed milk powder, it became costlier by 7%. At the same time prices of imported edible oil and khandsari went up by 1%. However, cement prices came down by 0.6% while iron and steel prices declined by 0.6%.

The inflation is now impacting the common man even more. This has disastrous implications at at time when the Congress seeks to limit the damage to its electoral fortunes. Nonetheless, the government continues to persist with the argument that food inflation is likely to moderate because of record procurement of wheat and rice, but it is global crude and commodity prices that would have a crucial role in bringing the overall prices down. An argument that Mr Sinha finds to ring hollow.

���The government is inclined to compare current inflation figures with that of 2000. What needs to be remembered is that rise in inflation rates in 2000 was caused by the increase in crude prices from $8 a barrel to $40 in 1999-2000. At that time, we passed on the burden to the economy. This time though crude prices are up to $130, the government is yet to pass on the burden of higher prices���.