ASSOCHAM is not alarmed by rising WPI in June

The marginal rise in Wholesale Price Index (WPI) in June is in tune with industry’s expectation as production denoted by IIP numbers released recently showed weak and unstable demand within the industry itself, leading industry body ASSOCHAM said on Thursday.

That might have forced the industry to control and manage its already existing over-production and over-capacity, by restricting the supply or putting a cap on production resulting in the increase in WPI numbers though marginally.

Voicing concern that prices of products such as pulses, vegetables, fibres, cereals, rice, sugar, wheat and oil seeds were continuously rising, Mr D S Rawat, Secretary General ASSOCHAM said policy makers needed to check and address it through supply side responses, though it is good to note that prices of onions have been managed well.

The industry chamber warned that weak IIP numbers followed by rise in WPI numbers might lead to transition of high price from producers to consumers which will eventually lead to rise in CPI numbers too and restrict RBI from reducing the key interest rates in forthcoming bi-monthly policy review.

Observing that RBI would not be in a position to address the demand and supply in India when CPI is at high level, ASSOCHAM said the need of the hour was strong actions from government to address the structural issues of demand and supply. The chamber also advised the government to implement its capital expenditure judiciously to increase the demand first within the industry that will help boost production and address the situation of over capacity.

Echoing RBI governor Raghram Rajan’s view that WPI numbers are also affected by actions of central banks of different countries, ASSOCHAM said in the current situation where interest rates are negative in advanced economies and central banks are following aggressive monetary expansion, rise in inflation at industry level shows that supply is being stopped to manage cost and price structure. Despite low cost of borrowing the industry in India is not able to benefit from the situation due to existing high leverage which is restricting its capacity to borrow and invest more, said the chamber’s secretary general.

India’s Wholesale prices have risen continuously for the third month. As per figures released by Government, WPI is at 1.62% for the month of June 2016 as compared to -2.13% during the corresponding month of the previous year.