The present dip is only temporary. The reason being the fall in the price of food articles. This was due to a 4 per cent fall in vegetable prices and a 3 per cent fall in the prices of fruits, mutton and tea. The inflation rate was at low levels owing to the higher base last year when vegetable prices were shooting up at a rapid pace due to poor agricultural production and stagnation in manufactured commodities prices. But the fresh arrival of agricultural produced helped inflation remain at a low edge. Revenue earning measures to be announced in the budget like uniform sales tax, increase in excise duties, cut in Government spending, hike in price of diesel/petrol to control the burgeoning oil pool deficit will only see that inflation will once again peak to a higher level after the budget exercise gets over and the Government manages to pass the bill in Parliament.

But a point to ponder about is that if manufacturing is not contributing significantly to WPI, in which it has the highest weightage followed by primary articles, it is simply because manufactured goods are not witnessing price increases. This only points out that this sector is lagging in demand. Otherwise inflation would not have been so low. This is detrimental to the overall economic growth and it could result in the industry slipping into a recessionary trap.

Low WPI is not something to be proud about, as it indicates that a good performance by agriculture which is more dependant on natural factors and a not-so-good performance by manufacturing indicates that the industry is still not in a comfortable position. Even the Index of Industrial Production will prove this point that industry performance is still at a low ebb. Today what Indian economy is facing is a combination of low inflation and low industrial growth which clearly proves that there is a high correlation between prices and industrial output.

Economists have predicted that in the coming fiscal, the inflation which is today artificially pegged low will peak up to 4-4.5 per cent levels. Today money supply is growing around 15 per cent and having a positive correlation with inflation will add to price rise in future. The Government is hinting at reducing its subsidy burden which is expected to overshoot its target by around Rs 5,000 crore. It has hiked diesel prices by around 35 per cent in the past few months, indicated a likely hike in kerosene and LPG prices in the coming budget and will put petrol under the 20 per cent uniform sales tax slab looking at the rising international crude prices. All this will have a cascading effect and put upward pressure on prices.

A recent study by analysts has shown that inflation has a direct linkage on the fiscal deficit situation of the Government. Rising prices lead to rising expenditures of the Government which fuels the deficit figures. The Government wants to prove that it has stuck to its commitments of containing fiscal deficit to its targeted figures and inflation is artificially monitored to low levels so that it has a clean track record of sticking to its targets.

It is only in India that emphasis is laid on the WPI index which is not a good reflectant of the price situation. CPI depicts a better picture of the reality. Most of the developed countries emphasise on CPI as it has a direct bearing on the standard of living of the consumer community.

The inflation rate looks low when measured by the official wholesale price index. Instead if one looks at the various consumer price indices, the picture is totally different. CPIs reflect the reality of prices at the retail level. Thus, while WPI went up by 2 per cent, CPI was up at 5 per cent. Today, the WPI looks low at 2 per cent as it is in comparison to a high 8.5 per cent in the corresponding period of the previous year.

Some points which should be looked into is the monetary policy being followed by RBI. It has recently reduced the interest rate by 1 per cent which has triggered an overall reduction in rates. This will result in many people dissaving thus resulting in too much money floating in the system which has a positive correlation to a rise in prices. RBI in a bid to stabilise the forex market is undertaking huge amounts of open market operations which is releasing a lot of money supply in the system. Thus recognising the high correlation, it is the prime responsibility of the central banks to check price inflation as they have the strings of monetary control within their reach. Another option is to open up imports, but this is a politically sensitive issue which many governments have not been able to tackle. This will reduce the shortage of goods in the economy and can help stabilise prices.

So what we expect in the future is not as rosy as it seem to be. The Government today will not hesitate to allow prices to rise as it is caught in a Catch-22 situation where prices are low and the manufacturing sector is also suffering.

Wockhardt Pharma
Wockhardt Pharma appears to be becoming a market favourite. The company is the result of a two-way split in Wockhardt and its underperforming businesses will be in Wockhardt Life Science. This way Wockhardt Pharma will be able to concentrate on its pharmaceutical business. The company retains Merind's operations which were taken over by Wockhardt in July 1999, Wallis Laboratories businesses which were taken over with effect from March 1998 and also the joint venture with Sidmak Labs.

Wockhardt Pharma's collective businesses account for 65.7 per cent of the total sales of the former company. Of this, pharma-branded, pharma-generic, bulk drugs and export account for 38.7 per cent, 5 per cent, 2 per cent and 12 per cent.

The pharma company has a major presence in anti-infectives (29 per cent), pain management (19 per cent), cough management (10 per cent) and cortisteroids (9 per cent). The company also has a presence in psychotropics, cardiac, tonics and medical nutrition segments. Out of total sales of Rs 707 crore (15 months), the company earned Rs 130 crore from the sale of its 10 leading brands. Branded formulations account for 59 per cent of pharma sales. The company spent Rs 100 crore in its R&D facilities in the last three years and has an ambitious programme to introduce many new drugs in following two years. The company has also taken over Wallis Laboratories in the UK for Rs 32 crore. Wallis is a strong player with a large network of retailers, pharmacies and OTC players. The company has also entered into JV with Sidmark Laboratories of the US. Wallis and Sidmark are likely to give access to many new drugs in export market.

The separation will also help Wockhardt Life Sciences to concentrate on its main business of agri-sciences, hospital business and parenterals. Parenterals and hospital business have more synergy because large consumption of parenterals comes from hospitals and not from medical shops. Their marketing requirements are different. Thus it could be expected that both the newly formed companies will prosper in the process. On the first day of listing, Wockhardt Pharma was quoted at Rs 1,100 and closed at Rs 985 per share. Wockhardt Life Sciences was quoted at Rs 169 which slid to Rs 153. Though Wockhardt Pharma will be low equity and high earning company, Wockhardt Life Sciences will be a high equity low earning company. Therefore, the present price for Wockhardt pharma seems to be more attractive.

Emcee (with contributions from Jayshree Jakhade and Dhruv Rathi)