The stability is expected to continue through most of next fiscal
The country managed to avoid the bogey of high inflation despite the drought condition in 2002-03 and the uncertainty regarding a likely war in the Gulf region.
The 52-week average inflation rate based on the wholesale price index (WPI) was only 2.6 per cent in mid-January 2003. The stability is expected to continue through most of 2003-04, says the Economic Survey for the current fiscal.
Prices of agricultural and manufactured products will continue to be stable and the only cause for concern will be domestic energy prices which are linked to international crude oil prices after the dismantling of the administered price mechanism (APM) in April 2002.
During the current fiscal, the inflation rate in the oil sector has hovered around the 5-6 per cent mark.
In case of a war in the Gulf region, energy prices may rise in the short run due to disruption in supplies. However, since modern wars are short and the effect on crude oil prices may taper off once the conflict is resolved, the Survey points out, thus downplaying concerns on account of the rising fuel price inflation which touched 6.4 per cent in mid-January 2003.
Any possible price rise in primary products, which hurts the poor, will be subdued thanks to the surplus availability of essential commodities like foodgrains and sugar and thanks to schemes like the Antyodaya, which supply foodgrains at highly subsidised rates to the poorest one crore families in the country. In the current year too, prices of primary products remained below four per cent for most part of the year.
In the current year, reduced dependence of food grain production on rainfall has also helped reduce the severity of the drought.
The impact could have been more severe but for the fact that 55 per cent of the foodgrains are produced in irrigated areas as against only 25 per cent in the 1970s, the Survey says.
The comfortable availability of food items was also reflected in the moderate inflation based on the consumer price index for industrial workers(CPI-IW), which assigns a weight of 57 per cent to food items. CPI-IW based inflation fell from 4.7 per cent in April 2002 to 3.2 per cent in December 2002.
Inflation in manufactured products, which account for 64 per cent of the WPI, rose to between 3-4 per cent after remaining below 2 per cent in the first five months of 2002-03.
Demand was subdued on account of the fall in farm incomes and price rise checked by increased international competition.