Inflation in India occupies only back page importance, unlike in other countries where it has a headline status. Governments elsewhere have to give a detailed account, on a regular basis, of any point to point increase or decrease. In India, it is only during budget presentation or elections that this variable receives its due importance.

If inflation is not checked or calculated correctly, it can be the root cause of many evils. Price rise or fall can harm both the consumer and the government.

In the Indian context, price stability has become the mantra of all governments.

But stringent monetary policies and erratic fiscal corrections are not proving very effective.

A look at the inflation series in the Indian context will show that there is no rationale to the inflation index. It does not reflect the actual state of affairs in the economy. Manipulation of the weightage of items at various levels is done to suit government expectations. There have been times when, in spite of a bumper crop, the food prices have been at their peak.

The government has realised how archaic is the formulation of the index. In its new series, it has introduced a revised index which is more realistic and depicts the level of prices at both urban and rural centres.

Inflation is the only variable that the common Indian understands. To him, low inflation means that the government is functioning properly. But hardly anyone understands that this is achieved at a cost.

Inflation currently is hovering at around 5 per cent points higher than the static 2 per cent level that had prevailed for a couple of weeks, around a month ago. This increase is attributed to the hike in the prices of diesel, petrol and LPG which have a cascading effect.

But a point to ponder is that if manufacturing is not contributing significantly to WPI, in which it has the highest weightage followed by primary articles, it is because the prices of manufactured goods have not been increased. This shows that this sector is lagging in demand. Otherwise, inflation would not have been so low.

This is detrimental to overall economic growth and could result in the industry slipping into a recessionary trap.Low WPI is not something to be proud of as it indicates a good performance by agriculture which is dependant on natural factors, and a not so good performance by manufacturing which indicates that industry is still not doing well.

Even the Index of Industrial Production will prove that industry performance is still at a low ebb. Today the Indian economy is facing a combination of low inflation and low industrial growth. It clearly proves that there is a high correlation between prices and industrial output.

The inflation rate looks low when measured by the official wholesale price index. But if one looks at the various consumer price indices, the picture is different. CPIs reflect the reality of prices at the retail level. While WPI went up by 2 per cent CPI increased by 5 per cent. Today the WPI looks low at 5 per cent when compared to a high 8.5 per cent in the corresponding period last year.

So the future is not as rosy as it seems. The government will not hesitate to let prices rise as it is caught in a Catch 22 situation where prices are low but the manufacturing sector is suffering.