Prices in India during the Plan Period

In this article we will discuss about the Movement of Prices in India during the Plan Period. After reading this article you will learn about: 1. Price Movement during First Six Plans 2. Price Situations during the Seventh Plan 3. Price Movements since 1990 4. Price Movements during the Eighth Plan and Next Period and Others. 

Price Movement during First Six Plans:

India has been facing the problem of inflationary trend in prices since mid-fifties. During First Plan, i.e., during the period from 1951-56, price level of the country was more or less stable. But between 1955-56 and 1960-61, i.e., during the Second Plan, the general price level in India was increased by 20 per cent.

But between 1961 and 1966, i.e., during the Third Plan period, the price situation in India became very difficult when the prices of foodstuffs rose by 40 per cent, prices of cereals by 45 per cent and that of pulses by 70 per cent.

In 1965-66 and 1966-67, the index number of wholesale prices jumped up by 14 per cent and 11 per cent respectively but in 1968-69, the price level declined by 1 per cent following a bumper harvest in the previous year.

During the Fourth Plan (1969-74), the price movement in India remained as significant as it was during the first three years of the plan. The price level rose by 7 to 9 points whereas the price level rose by 19 points and 47 points during last two years of the Fourth Plan (1972-74).

Taking 1961-62 as the base year, the whole­sale price index in 1974, 1975 and in 1976 stood at 331, 309 and 283 respectively showing a declining trend in prices in last two years. Again the prices started to rise. Taking 1970-71 as the base year, the wholesale price index gradually increased from 183 in 1977 to 185 in 1979 and then jumped to 224 by January, 1980.

During the First year of the Sixth Plan, i.e., in 1980-81, the wholesale price index rose to 256 and thus it rose by 38 points showing an increase of 17.4 per cent over the previous year. But then the price level became remarkably steady during 1982-83 where the price level rose by only 2.9 per cent over the previous year.

The price level again started to rise since 1983-84 and the wholesale price index gradually increased to 316 and 338 in 1983-84 and the wholesale price index gradually increased to 316 and to 338 in 1983-84 and 1984-85 respectively showing an increase of 9.4 per cent and 7.0 per cent in the price level over the previous years. In 1985-89 the wholesale price index again rose to 440 (1970-71 = 100).

Price Situations during the Seventh Plan:

During the Seventh Plan period (1985-90) the price level recorded an increasing trend. Table 13.1 will make it clear.

Table 13.1 shows that during first two years of Seventh Plan, the rate of increase in the price gradually declined to 4.7 and 5.8 per cent respectively. But after that the wholesale price index (taking 1981-82 = 100) rose from 125 in 1985-86 to 144 in 1987-88 and then to 167 in 1989-90 showing 9.4 per cent and 8.1 per cent increase in the price level respectively over the previous year.

Thus during the Seventh Plan period, the price level on an average rose by 7 per cent per year.

Price Movements Since 1990:

But since the beginning of 1990, the country had to face double digit inflation. Main reasons behind high inflation were increase in the administered prices of food grains and sudden jump in the prices of petroleum products due to the imposition of gulf-surcharge.

Table 13.2 shows the average rate of inflation experienced by the Indian economy as measured by percentage increase in CPI and WPI during the period from 1990-91 to 1994-95.

Table 13.2 reveals that the annual rates of inflation in India as measured by percentage of increase in CPI and WPI in recent years has increased from 11.6 per cent and 10.3 per cent respectively in 1990-91 to 13.5 and 13.7 per cent respectively in 1991-92. But after that, the annual rate of inflation gradually declined to 7.5 per cent and 8.4 per cent respectively, during 1993-94.

But the upsurge in inflation again started in 1994- 95 where the annual rate of increase in CPI and WPI recorded at 10.0 per cent and 11.0 per cent respectively.

Thus, the important reasons behind this spurt in prices back in double-digit level include pre-budgetary hike in issue prices and administered prices of essential commodities, rise in fiscal deficit, truckers strike twice in the year and various other cost-push factors.

Price Movements during the Eighth Plan and Next Period:

During the Eighth Plan movement of prices was quite erratic, having sudden ups and downs in the price level. The following table will clarify the situation. It is revealed from Table 13.3 that the 52-week average inflation rate which was 10.1 per cent in 1992- 93, gradually declined to 8.4 per cent in 1993-94 and then again reached the double-digit level of 10.9 per cent in 1994-95.

In 1996-97, the average rate of inflation declined to 4.6 per cent and the same rate further declined to 4.4 per cent in 1997-98 which was still the lowest during the Eighth Plan period and the post- reform period.

The annual rate of inflation (52-week average) again rose from 4.4 per cent in 1997-98 to 6.9 per cent in 1998-99. But the year 1999-2000 had experienced a good performance on the agricultural front, adequate buffer stocks of food grains and improved supply of essential commodities like edible oils, sugars and pulses.

All these have helped to contain the prices of primary articles. Prices of manufactured articles too remained below the 3 per cent level. Accordingly the annual average rate of inflation reduced to level of 3.3 per cent during 1999-2000. But the year 2000-2001 has experienced a turn-around in the price level.

Annual rate of inflation reached the level of 7.2 per cent in 2000-01. But the annual rate of inflation declined to 5.4 per cent in 2006-07 and the same rate expected to be around 4.7 per cent in 2007-08 and to be around 7.3 per cent in 2008-09 and then around 3.6 per cent in 2009-10 and around 8.9 per cent in 2011-12 and then around 6.0 per cent in 2013-14.

Again the build-up inflation rate in 2014-15 (April-December) was 3.4 per cent as compared to 6.0 per cent in the corresponding period of the previous year.

Downward Trend in Prices Since 1995-96 Onwards:

The country experienced a continuous, though gradual decline in inflation rate based on movement of wholesale prices from 10.4 per cent from the beginning of the financial year 1995-96 to 8.11 per cent by the end of July 1995.

The inflation level hovered around this level through November 1995 but thereafter, dropped further to 6 per cent (provisional) by the end of December 1995 as against 11.3 per cent in the corresponding period of the previous year.

Again the annual rate of inflation started to decline gradually and reached the level of 4.40 per cent during the week ending February 1996 and then slightly rose to 4.63 per cent for the week ending March 2, 1996. Thus the movement of wholesale prices during the past five years 1991-92 to 1995-96, throws up three phases of very distinct growth paths.

The first phase represented escalating inflationary path with annual inflation rate attaining a peak level of over 16 per cent in September 1991, that is just about the time the new economic reform policies became operational.

The next phase saw a gradually decelerating growth path with inflation rate touching a low of 6.9 per cent in April/May 1993. The third phase (1994-95) exhibited again an uptrend in growth of prices, but the inflationary undercurrent was not as strong as it was in the first phase (1991-92) and it peaked at about 12 per cent by January 1995.

The country is now at the beginning of fourth phase with inflation rates decelerating to about 5 per cent level in January 1996 and then the same rates reached the level of 4.14 (Provisional) per cent during the week ending May 25, 1996 as compared to that of 9.9 per cent (final) during the corresponding week last year (April 15, 1995).

1996-97:

The year 1996-97 started with an inflation rate of 4.8 per cent. It remained steady at this level of less than 5 per cent during the first quarter, April to June, 1996. The inflation rate remained static at 7.78 per cent during the week ending March 8, 1997, marking a long period in the single digit. Again, the inflation rate declined to 7.25 per cent during the week ending March 29, 1997.

2000-2001:

The year 2000-2001 began with an annual inflation rate of 6.75 per cent. The annual point to point rate of inflation (provisional) for the week ended January 27, 2001 was highest at 8.56 per cent while the 52 week average annual rate was 7.2 per cent. After that the annual point to point rate of inflation declined to 5.43 per cent for the week ended March 24, 2001.

2010- 11:

Inflation continues to be a cause of concern during 2010-11. The year-on-year WPI inflation that started trending up in December 2009 continued through the year 2010-11. The financial year 2010-11 started with a double-digit headline inflation on 11.0 per cent in April 2010.

After remaining in double digits from April to July 2010, headline inflation came down to single digits and stood at 8.8 per cent in August 2010 and then declined to 7.5 per cent in November, 2010.

But the trend reversed and in December 2010 it was 8.4 per cent as a result of food inflation. The overall inflation stood at 8.31 per cent in February 2011 and remained high at 8.98 per cent at the end of March 2011. However, the annual rate of inflation during 2010-11 (April-Dec.) stood at 9.4 per cent as compared to 3.6 per cent in 2009-10.

2011- 12:

Headline WPI inflation remained persistently high and relatively sticky at around 9 per cent during the year 2011. The financial year 2011-12 started with a headline inflation of 9.7 per cent which briefly touched double digits in September 2011 before declining to 6.6 per cent in January 2012. But the 52-Week Average Inflation (WPI) in 2011-12 (April-January) stood at 9.1 per cent as compared to 9.6 per cent in 2010-11.

2012- 13:

The financial year 2012-13 started with a headline Wholesale Price Index (WPI) inflation of 7.50 per cent. It has remained in the 7.18 to 8.07 per cent range in the nine months up to December 2012. But 52-Week Average Inflation (WPI) in 2012-13 (April-January) stood at 7.55 per cent as compared to 8.94 per cent in 2011-12.

2013- 14:

The financial year 2013-14 started with low wholesale price index which stood at 4.70 per cent in May 2013 and then it rose to 6.1 per cent in August, 2013. Again, India’s headline inflation based on wholesale prices rose to 7.52 per cent in November 2013 due to high fuel and food prices.

But after that India’s wholesale price based inflation fell to 5.05 per cent in January 2014, the lowest level in seven months, as a result of slower increase in food and vegetable prices. Thus, the build-up inflation rate in the financial year so far was 6.00 per cent as compared to 7.58 per cent in the corresponding period of the previous year.

2014- 15:

The financial year 2014-15 started with moderate wholesale price index of 5.8 per cent at Q₁ and then it declined to 3.9 per cent in Q₂ and then reached at a low level of only 0.5 per cent in Q₃, i.e. at the end of December, 2014.

India’s headline inflation measured in terms of the Wholesale Price Index (WPI) (base year 2004-05 = 100) which remained persistently high at 6 to 9 per cent during 2011-13, moderated to low of 3.4 per cent in 2014-15 (April- December) on the back of lower food and fuel prices.

The WPI headline inflation (provisional) in January 2015 stood at – 0.4 per cent. The build-up inflation rate in the financial year till January 2015 was – 1.1 per cent compared to a build up rate 5.2 per cent in the corresponding period of the previous year.

Food Inflation:

The present trend in inflationary prices is mostly resulted from rise in prices of primary food articles. Year- on-year inflation in the composite food index (with weight 25.4 per cent) at 19.8 per cent in December 2009 was significantly higher than 8.6 per cent in the last year.

In respect of food articles inflation on year-on-year basis in December 2009 was 19.2 per cent and on fiscal-year basis (i.e., over March 2009) it was 18.3 per cent.

In comparison to that the non-food inflation within the manufactured group of the WPI (with weight 53.7 per cent) stood at 2.4 per cent in December 2009 as compared with 6.7 per cent recorded last year. Thus the rapidly rising food inflation for several months has been a cause for concern for our country.

During 2010-11, the food inflation shot up to 16.90 per cent in June 12, 2010 because of higher prices of pulses, vegetables and milk. But it moderate to single digit in November 2010 and again jumped to double digits and stood at 13.6 per cent in December 2010. Again the food inflation stood at 9.5 per cent on March 19, 2011 and is likely to be around 8.0 per cent by the last week of March, 2011.

During 2011-12, the food inflation climbed to a six-month high of 10.60 per cent for the week ended October 8, as the prices of vegetables and fruits soared considerably, hitting the common man. Hence, this high rate of food inflation at 10.6 per cent was much more strenuous because the base-level inflation on October 8, 2010 was as high as 15.72 per cent.

Therefore, the effective rise of inflation comes to 17.38 per cent when added to the last year’s level. It means that the common man had to pay 17.6 per cent more on vegetables year-on-year, during the week ended October 8, 2011, while fruits were dearer by 12.4 per cent, milk went up by 10.9 per cent and eggs, meet and fish by 14.1 per cent.

However, food inflation fell sharply to a near four-year low 1.81 per cent, as on December 10, 2011, as prices of certain essential items like onion and potato dropped sharply. Experts are of the view that moderation in food inflation numbers, which was in double-digit in early November, is on account of good Kharif harvest and well as high base.

Again during 2012-13 (April-December), the average food inflation stood at 9.08 per cent as compared to that of 7.24 per cent in 2011-12. During this year, food inflation was triggered by food items like cereals, pulses, egg, meat, fish, sugar, gur and khandasari, etc.

During 2013-14, food inflation soared to 11.91 per cent in July 2013 and then it jumped to 18.18 per cent in August 2013 and then to 19.93 per cent in November 2013. After that food inflation eased to 8.8 per cent in January, 2014 as compered to 13.68 per cent in December 2013.

WPI food inflation, which remained high at 9.4 per cent during 2013-14 moderated to 4.8 per cent during April-December, 2014 following sharp correction in vegetables prices since December 2013 (except March, 2014) and moderation in prices of cereals and eggs, meat and fish. Thus persistence of food inflation in recent years has been the major contributing factor in high headline inflation.