For several weeks now, as the rate of inflation kept falling, some have raised fears of a deflation – a sustained decrease in prices that can spook business, investment and even consumption because people would postpone buying on expectations of even lower prices. Last Thursday, when inflation reached a 30-year low of 0.44%, many have expressed fears of a classic deflationary spiral.

Is this real?

I think not. I think we are being unmindful of many beneficial aspects that make deflation an unlikely, even remote, outcome.

First off, there is not enough economic theory to establish a strong correlation between deflation and emerging markets such as India. Secondly, it is clear the consumer price index hasn’t declined much even though the wholesale price index has. So, the real rate of inflation in the country is anybody’s guess.

Even if you forget the above, the elections and the IPL, if it happens, will pump in some money into the economy.

Over the last week, stocks of media companies have shot up in anticipation of a sharp increase in poll-related advertising. Also, reports suggest many TV channels have turned opportunistic and raised rates. The Congress Party has an official contract worth Rs. 150 crore with an advertising agency, the BJP has a similar deal worth Rs. 200 crore. Individual candidates can spend up to Rs. 25 lakh under existing rules, but all of us know they spend at least 10 times the amount.

Loose estimates suggest up to Rs. 10,000 crore in campaign expenses by candidates and parties; and over Rs. 5,000 crore if the IPL takes place. Still, Rs. 15,000 crore in an economy our size may not be that high. It is only $3 billion. But it can have the multiplier effect and may, if nothing, be enough to ward off deflation.