Date:22/09/2008 URL:

http://www.thehindubusinessline.com/2008/09/22/stories/2008092250871500.htm

Back Mr J. Karthikeyan, Director-Research and Consulting, Finerva

Financial Solutions; Sri Ramakrishna Engineering College,
Vattamalaipalayam
M. Periasamy

Club inaugural: Mr J. Karthikeyan, Director-Research and Consulting, Finerva Financial Solutions Private
Ltd, addresses the students at the inauguration of Business Line Club at Sri Ramakrishna Engineering
College. —

Our Bureau

Coimbatore, Sept 21 There is a dire need for the Government to revamp the price index to reflect
the present day life style of the people so that the index could serve as the true barometer of the
current cost of living.

The run away inflation due to the spike in oil prices has also brought into sharp focus the
importance of reducing the dependence on imported oil and finding new oil reserves, according
to Mr J. Karthikeyan, Director-Research and Consulting, Finerva Financial Solutions Private
Ltd, Coimbatore.

Speaking on ‘Impact of Inflation’ at a function to mark the inauguration of the Business Line
club at Sri Ramakrishna Engineering College, Vattamalaipalayam near Coimbatore, he said the
price index is based on certain constituents and their weightages that were finalised decades
back. While the selection of commodities that would go into the constitution of index might have
been relevant at that time, the change in the lifestyle of the people since then has made the index
as it is today clearly outdated.

He pointed out that telephone instruments enjoy a weightage of 0.05208 per cent and railway
sleepers 0.09898 per cent in the index. Zarda (beeda) is also part of the index and has a
weightage of 0.03557 per cent and black and white TV sets that have gone out of favour with the
masses have a weightage of 0.37192 per cent. Apart from being outdated, even some these
products cited above have disproportionate importance – for instance Zarda has more than 50 per
cent of the weightage of telephone handsets that was far more important and even B&W TV sets
enjoy a weightage in multiples of what was assigned to telephone instruments!

Spiralling Inflation
He said, “We need to look at inflation data with a pinch of salt.” Spiralling inflation spares none
– the different classes of citizens, the companies and even the Government are singed by it.
Inflation comes as a double whammy to the public – while inflation erodes their purchasing
power by reducing the value of money, the rise in product prices makes them to fork out more
cash. He mentioned the case of the increase in the price of a loaf of bread from Rs 10 to Rs 14 in
one year even as the weight of bread loaf was cut from 400 gm to 300 gm, which in effect meant
a net 65 per cent cost increase! The salary increases have no meaning when inflation is so high.
He pointed out that the banks were offering an interest rate of 10 per cent with a small increase
to the senior citizens. But what was the meaning of this return when inflation itself was ruling
above 12 per cent, he asked.

Industries hit

Mr Karthikeyan pointed out that the industry also becomes a victim of inflation and cited the
case of the poultry industry which was hit because of the increase in the cost of feed. The low
cost car Nano, to be launched by the Tatas, was to have been priced at Rs 1 lakh. But he doubted
whether at today’s inflation level it would be possible to keep the car’s price at that level. Even
the sale of consumer durables has been hit because of the increase in the cost of living. For the
industry, the new projects would become costlier and the break even period would take more
time. While export costs would go up, imports might not justify the returns.

Speaking on inflation’s effect on economy, he said it pushes up the social cost due to reduced
savings, lesser investment on infrastructure etc. There is a vicious circle of hoarding of
commodities leading to increased demand that pushes up inflation further.

He said the country should reduce its dependence on imported oil and scout for strategic reserves
and look for other sources.

Dr R. Rangarajan, Principal of the college and Mr D. Rajkumar, Regional General Manager, The
Hindu, Coimbatore, spoke.

© Copyright 2000 - 2008 The Hindu Business Line