A study undertaken by the Associated Chambers of Commerce and Industry of India (Assocham) has said ``this was one of the main reasons why overall price as measured by the wholesale price index declined to one per cent in the current year up to June 5 as compared to the 2.4 per cent increase in the same period last year''.

The decline in inflation levels of manufactured products was also in spite of the higher increase in prices of some major industrial inputs like fuel and power. Prices of power and fuel has gone up by 2.9 per cent during the first month of the current year as compared to the one per cent decline in the same period last year. Industry has found it hard to pass on the higher input prices to the consumers due to the threat of large-scale importsand slack demand conditions.

Given these circumstances, the industry will find it difficult to pass on any increase in taxes to the consumers. And even if any increase in prices of domestic industrial products are affected through an increase in taxes it will only serve to increase the imports of cheaper priced products from abroad and added to the import bill.

Assocham president K P Singh, while cautioning the government against hastily imposing any tax surcharges on industry to restore the fiscal balance said, though industrial growth and exports has shown a sustained pick up in the first quarter of 1999-2000, the industry is yet to fully recover from the three-year long economic slowdown.

The demand recession and the increased competition in recent years have forced down prices of manufactured products. The result has been a decline in profit margins and the savings and investments levels of the corporate sector. Any further taxation of the corporate sector will derail the recovery and affect thelong-term growth of industry.

If current trends are any indication, there is a real possibility of inflation hitting the magic "zero" mark in September or October. The latest data, as measured by the wholesale prices index (WPI), show that the inflation rate was at 1.83 per cent for the week ended July 3 - a 17-year low. But much of the decrease in prices is statistical, based on big increases in index numbers last year. The trends suggest that even if the WPI index moves up by 2.9 points between July and October, by end-October we could well see a zero rate of inflation. And that is not an unreal expectation, given that between April and July the WPI index has moved up a mere 2.2 points.

Ignoring last year, when vegetable (especially onion) prices rose abnormally, if one were to look at 1997-98 the WPI data show a rise of only 4.6 points between the first week of July and the last week of October. If that level of increase occurs this year, the inflation rate as at end-October will be 0.5 percent.

Last year, the prices peaked in October, with the index moving up to a high of 359.8 (final figure) in the last week of October. As opposed to that, in the first week of July 1999, the WPI index was at 356.9, well below the level reached in October last year. This raises the interesting statistical possibility of achieving a zero rate anytime between September and October. From November 1999, however, the inflation rate should move up since the corresponding index numbers started declining rapidly last year.