Inflation in India drops towards zero

Press, 21 May 1982, Page 12

Inflation in India drops towards zero

From “The Economist,” London

India is on its way to an anti-inflationary triumph. Wholesale prices in April were actually lower than they had been a year earlier (when the 12-month increase was running at 17.8 per cent). Consumer prices in February were up 9.6 per cent on a year earlier, but that index has a narrower coverage and is also slowing down. The turnaround is due to a maximum of luck and good management. A healthy monsoon for the second year in succession has helped to bring down agricultural prices. A dramatic improvement in essential services — rail transport, power generation and coal — enabled industrial output to grow by 9 per cent in the year ending last March. This, along with a more liberal import policy, alleviated shortages and helped to keep down prices. Tighter fiscal and monetary policy, assisted by an upsurge in public-sector profits, restrained demand. The International Monetary Fund, which sanctioned a loan of 55.5 billion to India last year, is delighted. It has recently suspended loans to 15 borrowers because they have failed to meet the conditions required of them. India has proved that I.M.F. conditions can be met, and comfortably. The broadest measure of the money supply (M 3 is estimated to have risen by less than 14 .per cent in 1981-82, against the I.M.F. limit of 15.7 per cent. Government borrowing and credit expansion are below I.M.F. ceilings. The foodgrain harvest has risen from 129 M tonnes in 198081 to probably 134 M tonnes in 1981-82. A bumper sugar cane crop — at least 7M tonnes, compared with the previous year’s 5.2 M. tonnes — has sent open-market prices plummeting by 42 per cent. The price of oilseed is down by 19 per cent, after a good groundnut crop. Fair harvests for cotton and jute, combined with weak demand for cloth and sacking, have brought down fibre prices by 8.2 per cent. ©

Source. Government of Indra The infrastructural improvements have been even more heartening: • Freight traffic on the railways increased from 196 M tonnes in 1980-81 to 220 M tonnes in 1981-82. • Coal output was 125 M tonnes, exceeding both its original goal of 121 M tonnes and a revised target of 124 M tonnes. • Power generation increased by more than 12 per cent. These changes have helped to improve India’s public-sec-tor finances. The nationalised industries have traditionally lost money. In 1981 the Government decided on big increases in the price of oil, coal and steel. The oil-price hike alone

gave the two public-sector oil companies a windfall of $1 billion (most of which was creamed off by taxes). Public enterprises made a post-tax profit of S4SOM in 1981-82, after a loss of S2OOM the previous year. This helped to trim the budget deficit from $2.2 billion in 1980-81 to ?1.9 billion in 1981-82. A further fall, to just over 51.5 billion, is planned for 1982-83. The Government is now negotiating fresh monetary ceilings for 1982-83 with the I.M.F. It is arguing that, as inflation is under control and a bumper wheat crop is about to be harvested, it will make sense to follow a more expansionary policy.