Economic Highlights

New Delhi, 24 October 2009

Monthly Price Index

HIGHLY COSTLY FOR ECONOMY

By Shivaji Sarkar

It has been a week of unique developments - all pointing to economic uncertainties and ad hoc decision making. One of the most significant moves was to make the announcements of price movement index once a month instead of every Thursday, as per the Central government decision. Oil prices boiled over to $ 80, a surge not seen in recent times. The third was the stock market waiting for a correction predicting the end of the bull run.

It is difficult to understand why the Government wants to change the practice of announcing the price index based on wholesale prices to every month. Obviously, it is cheesed off by the uncontrollable trends in the prices. It has to take the flak for it and finds it politically difficult to meet out. The price situation has always been of concern in this country for any Government as many have lost the mandate on this score alone.

The index is not only an indicator of the prices of commodities but it also speaks volumes about the purchasing power of an average individual. Indirectly it speaks of the linkages between availability, shortages and demand-supply management. The governments are largely held responsible for the management aspects and in many cases this is stated to be the reason for an unsavoury price situation.

The present decision has obviously emanated from it. The surging oil prices also contribute to the price trends. The way crude prices touched $ 80.05 only indicates that the world is preparing to meet another volatile price situation. Though the Indian government is not responsible for it, it has to bear the brunt. The oil price surge has cascading effect on all commodities and lifestyle, making cost of living expensive and further reducing the purchasing power of the people. It provides ammunition to the opposition and the Government unnecessarily feels hurt.

So once the process of announcement is made less frequent, the Government hopes it would have more breathing space. This is where the Government seems to err. The price index though has severe impact on the political system in itself is collection of innocent data that may indicate the impending economic conditions in the country. It helps the industry, trade and all others connected with economic activity, including the bourses.

It helps them plan for the eventualities. The market takes many correctional steps to avoid the pitfalls. A weekly prediction thus is beneficial for the players in the market. A delayed announcement though looks politically sanguine, it is certain to severely affect the trends in market movement. It moves on availability of transparent data. Sooner it is made available the better it is for the market.

The world has witnessed how improper data revelation had led to the collapse of the Soviet Union. The Lehman Brothers and Bernard Madoff-led New York Stock Exchange scams were also the result of concealment of data. The Government may argue that it was not concealing any data but was only rescheduling, delaying revelation. It forgets that such delays lead to losing of confidence in the market, making it move in awry directions.

The onerous task of any government is to ensure confidence in the systems in the country. If it takes a decision only for some immediate political fall-out, it would be extremely imprudent on its part.

The stock market as has been repeatedly observed is affected by commodity price movements. This time too the news of possible correction in the Mumbai stock exchange coincided with the Government's decision to delay the price index announcement. They look unconnected but in reality they are not so. The Diwali mahurat trading and post Diwali openings only revealed that the market is moving too cautiously and domestic players are not making much of an investment. This should not be treated as a healthy trend. The absence of domestic players is owing to the high prevailing prices and circumspection that the Government's decision to delay the announcement of price index has caused.

It has created a situation that stops short of panic. It has rung alarm bells that there is something seriously wrong with the economy and its data processing. Though this country has one of the finest data collections and revelation system, one move on the part of the Government is leading to a situation which might lead to a severe crisis of confidence.

The world knows that the weakest data are from China but the government there with its virtual monolithic and opaque functioning can sweep many things under the carpet. The international institutions have started questioning the Chinese data while praising the transparent Indian statistics. The Government's move has started raising the first doubts.

So far, it has only cast its shadow in a limited manner on the stock market. Since the bourses do not have much impact on the real economy, it may not appear to be so detrimental. But it may be the first warning that the Government's decision on the price index is unwelcome and unwise.

It is not just the market that is likely to be affected by the decision but even the Governments own actions and many other systems might get affected by it. The Government needs to restore the old system of weekly announcements to infuse confidence in the market as also its own credibility. Decisions should not be taken just for political considerations.

Economic fundamentals function on some practices, precedence and traditions and playing with it may be dangerous and detrimental for the well-being of the nation. The Government continues the old practice. The idea for monthly data suggested by the Abhijit Sen panel in 2005 has been gathering dust all these years. The Government should allow it to be buried and need not listen to ill-advised formulations of some of the so-called experts.—INFA

 (Copyright, India News and Feature Alliance)