One crutch is not enough.

Seems that the government, civil servants and business fellows all wait with bated breath for news of the Wholesale Price Index. Nothing else matters in a country with a billion people. WPI fell from 6.84% in February to 5.96% in March and immediately a great hallelujah went up. The Sensex jumped a thousand points as a cacophony of pundits, egged on by freeloading journalists, started speculating on whether the Reserve Bank will reduce interest rates by 25 or 50 basis points. No one stopped to notice that the WPI in January has been revised up from 6.62% to 7.31%. Whether this is mere incompetence or a deliberate act, to force the RBI to reduce interest rates, we do not know. So, the March figure could well have been under-stated. However, no one cares for accurate figures because once the rates are down it is a done deal. IIP which is an index of industrial production was up 0.6% in February and 2.4% in January compared to last year but the IIP has fallen for 6 of the 11 months of the financial year declared so far. Naturally, if industrial production falls demand for iron, cement and other materials measured by Core Inflation will fall as well. This came in at 3.5%. For the ordinary citizen all these figures are useless. Only the Consumer Price Index matters because this measures how the costs of daily living are rising. The CPI has dropped from 10.91% in February to 10.39% in March. Small comfort because prices of daily use are still soaring. The slight fall maybe due to the winter harvest coming to the markets but as summer approaches prices of vegetables and fruits will start to rise again. Then all eyes will be towards the heavens praying that the monsoon is kind this year. Parts of Maharashtra and Gujarat are experiencing such severe drought that there is not enough drinking water. That the fall in the WPI and the Core Inflation is due to a slowing economy is supported by a fall in truck rentals which fell by 1.5-3% in March. Truck rentals are down 8% in 2013 which means that fleet owners are unable to pass on the rise in the cost of diesel. Banks are apprehensive about this sector adding to their Non Performing Assets. Banks have lent Rs 600 billion to commercial vehicles which is 1.5% of overall loan exposure of banks. Livemint, 12 April. In a slowing economy with falling demand prices should fall so why is the CPI stubbornly above 10%? The reason is the humongous property price bubble. Every business fellow, whether making underwear, pots and pans or jharoos has moved into construction because that is where you can multiply your money 5 times within 3 years. They have borrowed vast sums to buy land. Everyone is terrified that if property prices collapse the entire edifice will come tumbling down, hence the obsession with WPI. Trouble is that the CPI cannot be controlled unless property prices come down. In a legless economy one crutch is certainly not enough.