Deflation: A worrying sign for Indian Economy

Inflation has always remained a key parameter to measure the country’s economic growth. Over the past decade, we’ve also seen Indian politicians highlight the issue of inflation to increase their vote banks. Ahead of Union Budget 2015, it’s not inflation but deflation that economist and analysts are worried about.

According to The Economic Times (ET) report, the Wholesale Price Index (WPI) during the month of January was dragged down to -0.39% as against a dip of 0.11% in December owing to a decline in fuel prices. However, analysts and economists believe that this is not good sign for the Indian economy in totality.

In the month of January, fuel and power inflation slumped to (-)10.69% from (-)7.8% in December 2014, as per the ET report. The inflation of primary articles surged to 3.27% as compared 2.17% which was registered in December. Inflation of food articles climbed up to 8% as against 5.20%, recorded in December 2014.

"Deflation in the world is affecting us as well. Manufacturers are losing their pricing power. We already have corroboratory evidence of surplus capacity. Lower pricing power for corporates implies that there will be less incentive to manufacture goods," Mythili Bhusnurmath, who is the consulting Editor of ET Now, told The Economic Times.

Sanjay Shah of HSBC Global Asset Management India told the ET,"If manufacturing inflation is so low, it will start reflecting in CPI and pull it down, that may take inflation numbers to levels lower than what the RBI wants."

On the other hand, Arun Singh, economist at Dun & Bradstreet, expressed his concern over deflation by telling Economictimes.com, “Once the oil prices rise, India will be vulnerable again. The negative inflation is a result of international factors, not domestic. That is a worrying sign.” (Image: pbs.twimg.com)