Apex industry body ASSOCHAM today welcomed the fall in wholesale price index (WPI) for August but however, raised concerns over the possibility of deflationary conditions in Indian economy as such a downtrend has continued over the recent months.
"With prices seemingly under control, both the government and monetary authority must focus on boosting the economic growth and demand in the economy," said Mr Rana Kapoor, president of The Associated Chambers of Commerce and Industry of India (ASSOCHAM).
"The RBI must ensure that cost of finance to the end user becomes competitive as it would also aid in increased purchasing power of consumers and resultantly demand for the goods will increase," said Mr Kapoor.
"This would surely help build upon the growth momentum, therefore RBI in its upcoming bi-monthly monetary policy must give due consideration to providing further fillip to the demand in the economy and announce a rate cut," he added.
"Emphasis must also be laid upon supply-chain management of items like pulses, onions and others essential commodities as their prices have shot up during the month as compared to the previous year," further said the ASSOCHAM chief.
"Impact of poor monsoon might reflect in the food prices, besides uneven rainfall may hit crops and could pile pressure on food inflation in the future, as such the government needs to outline its preparedness and plan of action to deal with any contingency arising out of such an event," he said.
The annual rate of inflation, based on monthly WPI, stood at - 4.95% for the month of August, 2015 (over August, 2014) as compared to - 4.05% (provisional) for the previous month. Decline across all major categories i.e. primary articles, fuel and power and prices of manufacturing goods has contributed to the WPI decline.
ASSOCHAM has been raising concerns over the long term sequential drop of prices across various key categories and of manufacturing products in particular. "This could adversely impact their pricing power."
"Deflation is a far greater worry than inflation considering that some fall in prices could very well result in slowing down of demand in the economy as when prices start falling, a vicious cycle of lower spending and lower demand sets in, thereby hampering growth," said Mr Kapoor.
"Moreover, a continuous decline in the prices of manufactured products would impact the profitability of corporates," he added.