Dip in inflation but rise in shopping bill - Deflation based on wholesale prices matters little to the homemaker’s budget

Deflation is on paper, not on the pocket.

For the first time in three decades, inflation slipped into negative — deflation in the economist’s lexicon — giving the average Calcutta shopper a glimmer of hope amidst spiralling prices. But the deflation — 1.61 per cent for the week that ended June 6 — will not bring down the monthly consumption expenditure of Shreya Mukherjee, a homemaker.

“Prices of almost all daily consumption items have been steadily rising. Can’t they fall or at least stabilise if there is negative inflation?” wondered the north Calcutta homemaker, tired of squeezing the family budget.

Going by the textbook, deflation — when the rate of change in prices turns negative — can lead to falling prices, but when it comes to the homemaker’s shopping list, there is a catch. “This deflation figure is based on an index drawn up on the basis of wholesale prices which doesn’t take into account all the items of daily consumption. So, inflation or deflation does not directly affect the common consumer in a big way,” said Anindya Sen, a professor of economics at IIM Calcutta.

Though inflation — calculated on the basis of wholesale price index (WPI) — was a negative 1.61 per cent, compared to a positive 11.66 per cent for the same week last year, prices of items of daily use like vegetables, cereals and edible oil remained much higher (see box).

The WPI is the price of a representative basket of wholesale goods and changes in the index are used to measure inflation in the economy. The WPI focuses on the price of goods traded between corporations rather than goods bought by consumers. “Our country is perhaps the only major economy in the world which still uses the WPI to measure inflation,” said Sen.

What affects the likes of Shreya is the consumer price index (CPI), which is a measure of the average price of consumer goods and services purchased by households. But as there are various kinds of CPI for different categories, there is always the question of which one to pick as the basis for arriving at inflation figures. “I don’t understand the distinction between different measures. I only know that my monthly expenses are constantly rising,” said Shreya. There is no arguing with that.

A proper index, which the government is working on for the past few years, can capture the spiralling consumer expenditure with a greater degree of accuracy, but it may become a political hot potato. “It’s far easier for the government to highlight lower inflation and give the illusion of stable prices. Perhaps that is why the government prefers to stick with the WPI,” said a city-based economist, who did not wish to be named.

[Source : Telegraph ]

Ahead of budget, Railways stares at Rs 3,000-cr loss

Former Railway Minister Lalu Prasad Yadav may have walked away with accolades for effecting cuts in passenger fares, even if they had strings attached, during his five-year term, but the Railway Ministry is now feeling the heat, losing as much as Rs 3,000 crore of revenue annually because of the fare-cuts that happened during his regime.

“Railways is losing revenue to the tune of Rs 3,000 crore annually, courtesy all the fare-cuts made during the past five years,” ministry sources told The Indian Express. The quantum of the “losses” has all of a sudden assumed much significance, given the fact that the Railways is struggling to meet its revenue generation target due to the ongoing economic slowdown. Insiders point out that the forthcoming Rail Budget on July 3 may not report high cash-surplus figures, as was the case with the previous Rail Budgets.

The fact that the Railways will have to shell out Rs 14,000 crore this year to meet the recommendations of the Sixth Pay Commission is not likely to help matters further. “There will be little to show in terms of cash surplus,” senior officials admit. Nevertheless, Railway Minister Mamata Banerjee is expected to go the politically correct way in doling out some reductions in fares here and there, which would further hit the revenues.

Lalu had made it a policy to announce “conditional” or “token” fare-cuts during his tenure. In 2008, he had announced a reduction of 7 per cent and 4 per cent, respectively in the AC 1 and AC 2 tier class fares. In 2007, he had announced 4 to 8 per cent reduction in fares for the newly designed high capacity AC 3 Tier and AC Chair Car coaches. Another 2 per cent cut was made on the fares for these high capacity coaches in 2008.

In the February 13 Interim Rail Budget this year, Lalu had announced a 2 per cent cut in the fares of AC first class, AC 2 tier, AC 3 tier and AC chair car. Lalu had gone on to claim that he had reduced the fares for AC first class by 28 per cent and AC 2 tier by 20 per cent during his tenure.

Railways’ Operating Ratio (which signifies the sum of money spent to earn a sum of Rs 100), is expected to worsen further. In the Interim Budget, Railways had projected an Operating Ratio of 88.3 per cent for this fiscal. This figure, say officials, could go up further. Significantly, Railways’ Operating Ratio had dropped down to 75.9 per cent last fiscal making it the best in four decades.

[Source : Indian Express ]

2009 Railway Budget related Links:

Tatkal Rates, Booking Time may be cut

The Election Book

We all would agree now, since the elections are over now, that this election was unique - not only because we got an unexpected winner, thw win has surprised the winner itself, the voter psycology was different, the political parties playing games not only before the election but even after the results were declared.

Keeping all the above points in mind, Live Mint has come up with a e-book which is not only an Electronic Book but also an Election Book, and has dealt with four aspects - The Voters, The Political Leaders, The Manifesto, and The Constituency.

Download the Election Book

Obama's Speech to the Muslim community

On 4th July, President Obama delivered a historical speech to the Muslim community at Cairo University.

Hear the speech below:

Day 1 : 15th Lok Sabha

Today begins a new journey for the newly formed government at the Centre, headed by Congress. And today being the first day of the 15th Lok Sabha, the day started with the ritualistic swearing ceremony of the Leaders in Power and the Opposition. As expected, Sonia Gandhi would be chairperson of the UPA, and Pranav Mukherjee would be representative of the Government. LK Advani, who was aspiring for the PM seat, has been nominated as the Leader of Opposition. It was a pleasant surprise to see Sonia Gandhi taking the oath in Hindi, although the word pratigya sounded more like pratigyaan :) , but its indeed a pleasure to listen to her fast improving Hindi.

It is expected that UPA government would soon be racing towards tackling so many challenges and tasks which are piling up eversince the elections were announced a few months back. The most awaited being the announcements from Finance Minister(FM) Mr Pranav Mukherjee. FM has promised to put India back on the growth track as soon as possible and also bring back the smile of common man inspite of world-wide recession. Hope he would soon come up with his near future agenda. And at the same time it would be a pleasure to see something of the sort of - 100 day plan for the Govt.

Amidst all the new beginnings the Government is making today, there are some improtant developments or destructions happening, and its slightly disturbing to note them, below I am mentioning some of the top worries at this point of time

- People torching the railway boggies in Bihar, because the train's route has been modified. Media is claiming that this is just because of the fact that the newly appointed Railway Minister (Mamta Banerjee) has modified the route of the train, as against the plans of the ex-railway minister Lalu Yadav. And media has concluded it to be Bihar vs Bengal episode. But if you ask me, I would confidently say that this is not as simple as it appears to be. I strongly believe that this whole episode has been created by political, which one? Well, you can guess that :)

- Indian students being victimzed in the land of Kangaroos. This is ironical at this point of time, because Australia is at the starting point of a new academic session and it is at the starting point of a compaign where it wants to welcome the students from all over the world. But if such racial discriminations is there to stay, then I doubt about the false promises made by the Australian PM in recent past, while welcoming the students.

It would be indeed a pleasure to see the Govt of India act on these two issues as soon as possible, as this would be first task in waiting for them by the end of the 1st day in office.

Added later : This is first instance in the history of Indian politics when a IIT-IIMer has been able to make it to the Lok Sabha. Prem Das Rai from Sikkim (and the lone Sikkim candidate) has been elected in the LS. Read the TOI report here

Other related Links:

15th Lok Sabha off to a good start (from The Hindu)

UPA : No Time to lose (from Business Today)

15th Lok Sabha : Its a family affair (from Rediff)

Good News : Don' waste it

(The voters of the world’s biggest democracy have given their government a precious second chance)

INDIA is a land of bright promise. It is also extremely poor. About 27m Indians will be born this year. Unless things improve, almost 2m of them will die before the next general election. Of the children who survive, more than 40% will be physically stunted by malnutrition. Most will enroll in a school, but they cannot count on their teachers showing up. After five years of classes, less than 60% will be able to read a short story and more than 60% will still be stumped by simple arithmetic.

Some 300 parties and numerous independent candidates contested the election that has just ended. They chose a bewildering variety of symbols: a lotus flower, a bow-and-arrow, a ceiling fan, a cricketer pulling the ball to the boundary. Of the 417m people who voted (a turnout of 58%), about 119m pushed the button next to an open hand, the symbol of the Congress party. That was enough to give it 206 of the 545 parliamentary seats. In a country more than twice the size of the European Union, speaking more languages, that is about as clear a mandate as any party can hope to win and—if Congress uses that mandate wisely—a wonderful chance to boost the welfare of the next generation of Indians.

Free at last…

The good news is that Congress has found it easy to form a coalition with what looks like a stable parliamentary majority. It will thus spare the country a repeat of the past five years, in which the party squandered its energies appeasing its allies in an unwieldy coalition. The election was also heartening because it revealed the limits of divisive politics. India’s second party, the Bharatiya Janata Party (BJP), remains rooted in the Hindutva (Hindu-ness) movement, which seems to believe that India’s 160m Muslims live there on sufferance. The BJP lost ground this time, showing yet again that Hindu nationalism is enough to underpin a party, but not a government.

Still, Congress must not now fall prey to complacency. The party is a big, shapeless tent, tethered to the Nehru-Gandhi dynasty, which has provided three of the country’s prime ministers. The courtiers have now turned their attention to the next in line, Rahul Gandhi, the son of Sonia Gandhi, the party’s leader. But, following the example of his mother, he is in no hurry to become prime minister. That is commendable. Manmohan Singh, the Oxford-educated economist who has been prime minister since 2004, has business to finish.

Liberals hope that Mr Singh’s reformist instincts will enjoy freer rein now that Congress is no longer beholden to the communist parties which abandoned the government last summer and suffered horribly at the polls this spring. But liberalising measures, such as lifting the cap on foreign direct investment in insurance, win few votes in India. Only 0.7% of households own any of the shares that jumped by 17% on the first day of trading after Mr Singh’s victory was declared.

Mr Singh says his aim is “inclusive” growth. He and Mrs Gandhi have shown a taste for redistributing the proceeds of growth to favoured constituencies, some of whom happen to be desperately needy. The government raised the pay of public employees, forgave the loans of small farmers and expanded its public-works scheme for the rural poor.

Congress will find it harder to repeat this trick in its second term. Although the electoral maths is now in its favour, the fiscal arithmetic is less forgiving. The government’s budget deficit (including the states’) could exceed 11% of GDP this year. If the economy recovers—India, alongside China, seems to be decoupled from the sluggish West — the government’s borrowing will put pressure on interest rates.

To narrow the deficit, it will be tempted to short-change infrastructure spending, an investment that pays off slowly. But this would be a false economy. If India is to grow at 9% a year, it needs to add at least 25,000MW of power a year. It is also bad politics: in the states of Bihar and Orissa, voters in this election proved they will reward state administrations that show an interest in improving their lot. A government with a secure five-year term has a chance to earn votes, not just buy them.

A better way to save money would be to curb government subsidies on fuel and fertiliser. These outlays are wasteful and mostly benefit better-off people who own vehicles, or farm large plots of land. Fuel subsidies, in particular, hold the public finances hostage to the world oil price, which threatened fiscal mayhem when it passed $140 a barrel last summer. Another crisis beckons if the world economy recovers.

Reforming subsidies would be administratively easy, but politically tricky. The same, alas, applies to India’s onerous labour laws. It would take only a penstroke to repeal these rules, which make a tiny fraction of the workforce practically unsackable, at the expense of everybody else. But with exports plummeting and industry shrinking, it would be a brave new government that made Indians easier to fire.

Sadly, Congress has neither the courage nor the mandate to grasp this nettle. Yet some urgent reforms would be politically popular. To reform education or combat malnutrition, for example, the government needs to recruit, motivate and monitor millions of teachers and crèche-workers. Unfortunately, that asks a lot of India’s creaking bureaucratic machinery, which is notoriously prone to “leakage”, a euphemism for corruption. Mr Singh’s failure to repair that machinery explains a lot of his government’s failure to achieve much else. It has, for example, dawdled over a bill that would supposedly enforce the right to education, because it fears the practicalities. In India, it can take up to four years to fill a teacher vacancy.

…but no more excuses

In the past five years Congress could blame such shortcomings on the vagaries of coalition politics. But it lost that alibi this week. Unencumbered by its useless former allies, it now has a clear mandate to provide the country with educated minds, well-fed bellies, irrigated fields and uninterrupted electricity, without busting the budget. Promises to do just that featured prominently in Congress’s manifesto, just as they did in the election of 2004. If the hand comes up empty again, India’s voters will push someone else’s button next time.

[This article has been taken from The Economist, 21st May. See the here]

Jumbo Nation, Jumbo Election

As reported by the Economist, here is what an outsider's views on the Indian election system, and the democracy we follow as an Indian common man. The Economist terms the Indian elections as -The worst possible way of choosing an Indian government—apart from all the others 

Read on the full article from the recent edition of the magezine.

LIKE a lumbering elephant embarking on an epic trek, India’s general election got under way this week. That it keeps going is something of a miracle. The scale is mind-boggling. It will be spread over five stages, taking four weeks and involving 6.5m staff. In 543 constituencies, 4,617 candidates, representing some 300 parties, will compete for the ballots of an electorate of 714m eligible voters. In 828,804 polling stations, 1,368,430 simple, robust and apparently tamper-proof electronic voting machines will be deployed. It is hard not to be impressed by the process—and its resilience.

A poor, diverse country of more than 30 main languages and six main religions, India also has, in the Hindu caste system, a tradition of hierarchy seemingly at odds with a system of universal suffrage. The country suffers security threats that would provide many a government with the excuse to suspend elections. Kashmir has been riven by insurgency for more than two decades; parts of the north-east for even longer. Maoist revolutionaries-cum-bandits stoke another fire in India’s interior and staged attacks as polling began this week. Yet, apart from the brief months of the “emergency” in 1975, India has never curtailed its people’s right to choose their rulers. And now, more than ever, that right is to be prized.

Singh if you’re glad to be grey

The election comes amid the deepest global economic slump for two generations. India faces difficult choices as it seeks to escape the worst of the downturn. Voters have a chance to judge five years of government by a coalition led by the Congress party and its elderly prime minister, Manmohan Singh. It has presided over an unprecedented economic boom, and has continued the course of cautious liberalisation and globalisation followed by its predecessors. It has succeeded in raising India’s international standing and, with its controversial agreement on civil nuclear co-operation with America, has accomplished an important strategic tilt.

Yet Mr Singh’s government has made scant progress towards one of the main goals it set itself in 2004. This was to reform India’s creaking, corrupt administrative structures so that policies formulated in Delhi might actually be implemented in the villages where most Indians still live. Partly because of that failure, and despite sharp falls in the poverty rate, appalling numbers of Indians are still desperately poor. One-quarter of the world’s malnourished live in India, among them 40% of all Indian children under five. To Mr Singh’s credit, it is the plight of the poorest, not India’s GDP growth-figures, that is usually the starting-point for his policy speeches. This is also shrewd: the poor do not care about his achievements as a diplomat and globaliser, which scarcely impinge on their lives.

As in other countries, elections in India tend not to be dominated by grand national issues. And, as elsewhere, an Indian election may look splendid from a distance, but up close can be ugly. Campaigns are dominated by personalities, money and, in some places, intimidation. Many candidates seek votes through beggar-thy-neighbour appeals to the self-interest of a particular linguistic, caste or religious group.

Even in such an unpredictable contest, two outcomes are sadly fairly safe bets. First, parliament will have to make room for a lot of shady characters. Nearly a quarter of the current members have faced criminal charges. Nor are their alleged offences all petty. They include murder, rapes and kidnaps.

Second, the resulting national government will be a coalition, its policies held hostage by its smaller members. The secular trend in Indian politics is the gradual decline of the only truly “national” parties, Congress and the main opposition, the Bharatiya Janata Party (BJP). In 2004 the two combined won less than half (49%) of the votes. On the rise is a legion of regional and caste-based parties that do not even pretend to be guided by the national interest.

In part, the big parties can blame themselves for this. Congress, despite able technocrats, like Mr Singh, remains an antiquated dynastic machine. The prime ministership was bestowed on Mr Singh by Sonia Gandhi, the party’s Italian-born leader. He seems to be keeping the seat warm for her son, Rahul, a pleasant-seeming but unconvincing chap apparently destined to represent the fifth generation of his family to lead Congress. Nor is the economically liberal Mr Singh a typical Congress-man. Much of the party is still nostalgic for the Nehruvian socialism that for so long impeded India’s growth.

In power, the BJP also had a creditable record of economic management. But it has not escaped its origins as the political wing of the Hindutva, or “Hindu-ness” movement. That has an extremist fringe that has at times been guilty of terrible violence against India’s large Muslim minority and smaller Christian one, who may never trust BJP rule.

Better than the alternative

For this reason, The Economist, if it had a vote, would plump for Mr Singh’s Congress. But in reality, the choice between the two big parties is not the one on offer. In India the poor, proportionately, are more likely to vote than are the middle classes. It often makes sense for them to back regional parties campaigning on local issues: they are more likely to fulfil their promises. But it does make for hopelessly unwieldy governing coalitions. One solution would be to introduce national thresholds below which parties would be ineligible for seats in parliament. But reform would need the approval of those elected under present arrangements, so it is not on the cards.

Before yielding to despair over the intractability of political reform in India, it is worth considering the outcomes of recent elections. Since launching liberalising economic reform in 1991, India has had a succession of governments that have frustrated with their timidity, but have broadly kept the economy on track and avoided dangerous policy lurches—the BJP, to forge a coalition, had to ditch its core Hindutva demands, for example. Undemocratic governments might have been bolder, quicker and more efficient. But they might have been a whole lot worse, and certainly a whole lot harder to replace. Let the elephant lumber on.