WPI is in tandem with expectations of the Indian economy post demonetisation, says ASSOCHAM

Apex industry body ASSOCHAM today stated that fall in wholesale price index (WPI) numbers for the month of November 2016 is in tandem with the expectations which started to feel the depressive state in the Indian economy owing to the demonetisation announcement in November 2016.

The chamber indicates that WPI numbers for the coming months is expected to fall in coming months since any increase in crude oil prices due to output cut decision by OPEC countries and increase in prices of other commodities due to stimulus given by US and other developed countries will be offset by downward pressure on consumption demand, which is a main contributor in GDP. The November 2016 WPI number stood at 3.15 percent as compared to 3.39 percent during the previous month.

Going by the sectoral composition, the fall in WPI is mainly driven by vegetables, potato and fruits. ASSOCHAM states that prices of products which are of national interest has been rising at industry level are wheat and pulses which policy makers should check and address through supply side responses, said Sunil Kanoria, president ASSOCHAM .

ASSOCHAM states that though the RBI reduced the key policy rates in October 2016 to provide impetus to industry but banning of specified bank notes casted a shadow on industrial outlook, which has increased the burden further on producers to strive in the situation of over capacity along with slacking demand.

ASSOCHAM cautions the policy makers to take some corrective actions to arrest the fall in WPI since IIP numbers for the month of October 2016 have fallen by 1.9 percent and it is further expected to fall in the coming months owing to the prolong effect of ban on currency of high denomination which will create downward price pressure on industrial output.

ASSOCHAM suggests that boost to industry is required from both monetary and fiscal policy, i.e., lowering of interest rates by RBI and reduction in tax rates by Government of India in the coming budget to counter the effects of overall slowdown in Indian economy which is expected to curtail the GDP growth by 0.5 percent to 1.0 percent as clearly seen from indicators such as GDP for 2nd quarter of 2016-17, CPI for November 2016, and IIP for October 2016.