Second, falling prices have created a window of opportunity for the government. The oil pricing policy should have been changed many years ago but would have pushed up prices and resulted in inflation if it had been done in a period of rising prices. Now that prices are falling, this is a good time to do away with administered oil prices and link them to the market. Even if they lead to some rise in other prices as well, through linkages with the rest of the economy, it will hardly be painful if it brings price rise from a negative to a zero per cent increase.

Finally, the deflationary environment also supports an expansionary monetary policy. Given these low numbers on inflation, which are expected to continue in the future as long as low demand conditions persist, it is reasonable to expect that the RBI should now lower interest rates. In fact, doing nothing is as good as tightening monetary policy because, with the fall in prices and nominal rates unchanged, real interest rates are rising. The few green shoots of recovery that can be seen with the improvement in cement and industrial production could quickly disappear.