WHAT MATTERS: Prices of commodities will continue to be guided by CPI-inflation (Bloomberg)

For the week ended 6 June, inflation as measured by the wholesale price index (WPI) fell to minus 1.6 from 0.13 per cent in the previous week. This was largely due to the base effect — it was at 11.66 per cent a year ago — and is not surprising at all.

For the man on the street, the fall in WPI to sub-zero levels does not mean a thing. It does not say anything about the rise or fall in prices at the user level. It is inflation as per the consumer price index (CPI) — which comes out on a monthly basis — that matters. CPI stood at 8.7 per cent for April, up from March’s 8.03 per cent.

“WPI inflation numbers are meaningless,” says Madan Sabnavis, chief economist at NCDEX. “This week-on-week number does not reflect the reality on the ground as price changes in several commodities in the index are not even captured in that time frame.”

There is a move to recalibrate the WPI and make it a monthly affair even as some argue that it is the CPI that is relevant like in most advanced countries.

Is this trend likely to continue? According to Rohini Malakani, economist at Citigroup (India), inflation may well be in negative territory for the next three months, and she expects it to inch upwards to 4 per cent by the end of the financial year. “There are risks due to rising oil and food prices due to the El Nino threat,” she says.

There is another worry: is stagflation — low growth and an uptick in inflation — around the corner?

AGRICULTURE
Grain Of Truth

Lack of storage space and standards dog the Food Corporation of India

PERENNIAL PROBLEM: FCI lacks sophisticated storage mechanisms (Pic by Sanjay Sakaria)

The Food Corporation of India (FCI) has 1,549 godowns with storage capacity of 24.34 million tonnes — less than half of what is required to store the 50 million tonnes procured. Also, FCI’s godowns do not have the wherewithal to ensure high standards of storage of grains, which are vulnerable to attack from rodents, weather and even pilfering.

“More than 10-20 per cent loss is an accepted norm, but it does get worse,” says a senior official in the department of consumer affairs and public distribution.

Further, the corruption is another cause of leakages from the FCI. In fact, in a response to the Parliamentary Standing Committee report of 2007, the agriculture minister said 25 per cent of the FCI staff was found guilty of corruption charges.

“Food grains entering and exiting FCI and other warehouses should meet the Indian food laws; currently they don’t,” says Vijay Sardana, director of Achievers’ Resources India, a Delhi-based agribusiness knowledge services company.
M. Rajendran

STRICTLY BUSINESS

PHARMACEUTICALS
Numbers That Don’t Tell

The pharmaceuticals export Promotion Council (Pharmexcil), set up by the ministry of commerce, and the Federation of Indian Chambers of Commerce and Industry (Ficci) are painting two very different pictures of the state of India’s drug exports in the run-up to the budget.

According to Pharmexcil’s figures, exports to the US recorded a healthy 25.1 per cent growth to Rs 6,380 crore in the 11 months ended February 2009 compared to the same period last year.

However, a Ficci study released last month says that the global economic downturn has hurt the pharma industry, and drug exports to the US fell 37 per cent to $478 million (Rs 2,307 crore) in the five months ended February 2009, compared to $756 million (Rs 3,648 crore) in the same period last year.

The different time frame as well as the currencies selected for the studies could be the reason for the stark difference. Still, the contrast is startling.
Noemie Bisserbe

(Businessworld Issue Dated 23-29 June 2009)