Governments have always loved to hedge inflation statistics especially when it is galloping. But the present controversy of the deliberate fudging of figures by the UPA government to claim a lower rate of inflation is shocking. This is unprecedented and has raised questions about the credibility of UPA handouts on economic growth.
The UPA Finance Minister is a past master in figure fudging. On the allegedly whopping Rs. 60,000 crore loan waiver and deficit management we have seen it. But this one will take the prize.
Economics is more about data than about interpretations. It is the accuracy of collected data that bestow the status of science to an otherwise hooch-pooch discipline and Manmohan Singh government has not done much justice on this count either.
There is a huge mismatch between the official inflation statistics and the price at which commodities are sold in the market. The Economic Times reported on April 14, when the official figure of inflation was 7.41 per cent, that a realistic assessment of the market price would show that inflation has reached double digit. Prices of a large number of essential commodities in the wholesale price index (WPI) have not been updated for almost a year helping the government falsely report on inflation. It has even sat for three years on the recommendations of a task force to update the WPI data to make it more realistic and reflective of market behaviour. The picture becomes more intriguing, in the light of Finance Minister'sstatement last week that he will bring inflation to the five per cent level within a week. A day after he made this announcement the inflation started a downward trend to 7.14 per cent though in reality prices across the board showed an upward trend.
The ET report said, for the week ended on March 29, the 7.41 per cent inflation officially claimed could be much higher if the large number of items whose prices had actually increased manifold but not calculated in the WPI were also taken into account. The items that remained static for many months in the WPI though they actually kept rising include household items like utensils, batteries, biscuits, processed tea, detergents, toothpastes etc whose combined weight is more than 10 per cent in the WPI. There are a lot of other items like fertilizer, pesticides, tobacco, electrical goods etc which too remained static on WPI. The other items, which are not reflected in the price change, include electrical appliances, plastic products, tyres and polyester yarn.
WPI is the most important inflation input for the formulation of monitory and fiscal policy. See how callous the government is about its updating!
The measurement of wholesale price index as of now is based on 1993-94 prices. The Abijit Sen Committee set up in 2005 to review and update the WPI had suggested to take 2004-05 as the base year for the calculation of WPI. This would have provided a more accurate measure of inflation. This is precisely the reason why the government is holding back the implementation of its suggestions. The continued use of the faulty measurement for inflation is a deliberate ploy by the government to conceal the ground reality.
The UPA has been delaying the implementation of the revised price indices for three years now. The old indices are helping the government show a lower rate of inflation than what the consumers are suffering in real terms. Other suggestions to revise the WPI include doubling the number of commodities and articles from the present 435, change in weightage for sugar from 2.01 to a lower level and fuel group from the present 14.23 per cent to a higher level to reflect better the spiralling increase in fuel price.
The government is aware that erroneous data always leads to wrong policies. The National Statistics Commission under the chairmanship of Dr. C. Rangarajan had recommended upgrading the quality of data collection as a tool for effective policy initiatives. Wrong data often leads to ill-conceived and misguided policy formulations. As we have seen in March when inflation reached 6.68 per cent, the government mindlessly cut duty on import of food articles and imposed a blanket ban on the export of rice and other food items from India. This in effect further shrunk India'sexport earnings even as it encouraged hoarding and market panic further pushing up inflationary pressure. Similarly it has been keeping the dollar value high even as rupee suffered and made Indian imports costlier again leading to price rise. The government here gives the impression of being a prisoner of the powerful export lobby. The UPA is also considering ban on export of steel, enhancing export duty on iron ore and reducing excise duty on the metal and its alloys. All this will cheer the hearts of the MNCs and help their profiteering and reduce India'smarket share abroad. This is crony capitalism killing the domestic industry. But it is again being done in the name of fighting inflation.
There are many reasons to believe that the government is not serious about providing accurate data on inflation. Admitting the existence of a double-digit inflation will carry a huge political price. Firstly, the WPI measures the headline inflation and as such does not reflect the actual price rise at the retail level. But this is what the consumers have to pay. Already the economy is on the boil and the opposition has made it the main target of its agitation.
It is not difficult to manipulate figures in India. Government is practically the only source of basic data. Our system is still archaic, data integrity is often a matter of political convenience. The high rate of illiteracy, politicisation of statistical institutions and complex diversity of national life make data collection a stupendous task. The Collection of Statistics Bill 2007, to modernise data collection is still pending in Parliament. So the UPA has its way.