WPI to become more sugary

MEASURING INFLATION

The sugar industry is likely to get a big relief as the government is set to revise the commodity’s weight in the new wholesale price index (WPI), the index used to measure inflation.

In its preliminary report submitted to the government recently, the working group for revision of WPI numbers has recommended a weight of 1.67 per cent for the sweetener against its existing weight of 3.61 per cent.

Sugar, as a commodity, has always been vulnerable to immediate government action because of the high weight allotted to it in the WPI.

The sweetener’s weight in the WPI at 3.61 per cent is more than cement’s 1.73 per cent, wheat’s 1.38 per cent and just lower to iron and steel’s combined weight of 3.64 per cent.

In June 2006, for instance, the government imposed a ban on sugar export to check the price rise and contain inflation. The six-month long ban affected the sugar mills and contributed to the crash in prices. A record production followed and almost crippled the industry, which began piling up huge arrears to the farmers and caused unrest.

Also, the government has often resorted to additional open market release of sugar quota to cool its price and keep inflation under check. The sugar industry had long been lobbying for a reduction in the weight given to sugar.

“The weight of 3.61 was completely unjustified. The downward revision would have a positive impact on the industry and prevent unwarranted government action,” said S L Jain, director general of the Indian Sugar Mills Association.

Research firm KPMG had also contested the current weight accorded to sugar in the WPI in a study conducted on the sugar industry last year.

“The Madras School of Economics suggests that the appropriate weight for sugar would be 2.02 per cent according to the current basis of WPI calculation that excludes services. MSE also suggests that services should be included in the WPI calculation, in which case the appropriate weight for sugar would be 1.04 per cent,” the KPMG report said.