Tagged: Food Inflation

Govt offers export sops, but hobbled by fiscal needs

Reuters | Aug 23, 2010 | 6:44pm IST

India on Monday offered incentives to some exporters to help them tide over an uncertain and “fragile” global economic recovery, but said fiscal consolidation might not allow continued support in the future. Trade Minister Anand Sharma, who unveiled the country’s annual foreign trade policy, also said the government would continue to restrict exports of certain food items as it deals with double-digit food inflation. India’s exports, which make about one-fifth of its economy, returned to double digit growth in November after last year’s prolonged slump. However, the pace of growth in the sector slowed to an annual 13.2 percent in July from 30 percent a month ago, reflecting a dampening base effect and demand contraction in Europe and the United States, with the government forecasting an uncertain outlook for the sector over the next six months.

“There is still a shroud of uncertainty over the fragile nature of global economic recovery. Even as global economic rebalancing is proceeding apace, it is not going to be an easy patch for our exporters,” Sharma said. “We also have to be conscious of the need for and the inevitability of fiscal consolidation,” he said. “Suffice it to note that the level of resources available today may not be available in the future.” India has been saddled with a high fiscal deficit and aims to cut the deficit to 4.1 percent of GDP in 2012/13 from 5.5 percent projected for this fiscal year.  The need for fiscal prudence stopped Sharma from providing incentives for all export-oriented sectors and instead focus on labour-intense industries and those which are important for capacity expansion in the economy.

As part of the new incentives, the government will allow duty free imports of capital goods until end-March 2012 and provide an interest subsidy of 2 percent to textiles, leather and jute industries for 2010/11. It will also continue to refund taxes paid as custom duties until end-June 2011. Sharma said the additional export incentives would cost the government $214 million in the current financial year. Continue reading

India Needs New Methods to Boost Farm Production Growth to 4%, Singh Says

Bloomberg |

India needs to invest in technology to cultivate dry areas and boost farm production lagging at the slowest pace of growth in five years, Prime Minister Manmohan Singh said in his Independence Day speech.The South Asian nation wants to boost agricultural growth to 4 percent, Singh said today. Farm output in Asia’s third- largest economy grew 0.2 percent in the year ended March 31, according to government data. Increasing farm output is crucial for Singh’s government to meet its target of 8.5 percent economic growth. Agriculture accounts for about 18 percent of the $1.3 trillion economy and directly employs 235 million people, almost equal to the population of Indonesia. “Any hopes of achieving higher overall economic growth without a robust farm sector growth are myopic,” said Jay Shankar, chief economist at Religare Capital Markets Ltd. “The prime minister is moving in the right direction with the focus deepening on the sector.

The government is probably realizing that crop yield hasn’t reached its potential.” Technology to farm dry areas and reduce dependence on the annual monsoons will also help the government keep inflation under control, Mumbai-based Shankar said in a telephone interview. Reserve Bank of India Governor Duvvuri Subbarao on July 27 raised the forecast for economic growth. India’s economy may accelerate at 8.5 percent in this fiscal year, faster than the previous estimate of 8 percent, the bank said.

Food Inflation

India’s food inflation slowed to 9.53 percent in July, a 13-month low and down from 21 percent in November, as the country last month got more monsoon rains than forecast, aiding sowing of lentils and rice. “Our government wants a food safety net in which no citizen of ours would go hungry,”

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India food security law could double food bill

Reuters | Fri Jul 30, 2010 | 3:52pm IST

India’s proposed food security act could nearly double to as much as $23 billion the food subsidy bill from targeted levels, Farm Minister Sharad Pawar suggested on Friday, potentially spooking plans to cut the fiscal deficit. The proposal, to provide cheap foodgrains to the poor, has been backed by the ruling Congress party’s powerful chief Sonia Gandhi. The government went back to the drawing board after she suggested the entitlements under the law be widened.

Pawar told parliament the cost of the new welfare scheme could be between 767.2 billion rupees ($16.5 billion) and 1.07 trillion rupees ($23 billion). This compares with the 555.78 billion budget target for food subsidies in 2010/11 fiscal year. The range represents two proposals for the bill, one offering 25 kg of grains each month to poor households and the other giving 35 kg.  

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PM maintains optimistic inflation forecast

Reuters | Sat Jul 24, 2010 | 12:09pm IST

Prime Minister Manmohan Singh on Saturday reiterated his prediction headline inflation would ease to 6 percent by December, a forecast more optimistic than that delivered by his economic advisers a day before. The prime minister’s Economic Advisory Council had said inflation would be at 7-8 percent by the year-end, compared with 10.55 percent in June, and its chairman recommended strong monetary action to tame runaway prices. Singh’s statement comes amid a growing divergence between the government and the central bank on the need for monetary tightening to cool inflation that has been in double digits for five straight months.

New Delhi puts high food prices as the cause and argues normal monsoon rains would cool inflation, while the Reserve Bank of India (RBI) says demand-side factors will continue to keep up pressure on inflation. On Saturday, Singh backed his officials’ view. "The present high rate of inflation is mainly due to food price inflation," he told a conference of top federal and state policymakers gathered to assess the country’s development plans. "The government has taken a number of steps to curb inflation. With a normal monsoon, which is the expectation at present, the rate of inflation will abate in the second half of the year."   

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Fuel inflation jumps; rate hike seen coming

Reuters | Thu Jul 8, 2010 | 12:20pm IST

India’s food inflation eased, but fuel inflation accelerated in late June and a recent hike in fuel prices kept the case for the Reserve Bank of India (RBI) to top up its last Friday’s rate hike when it reviews policy on July 27. The second straight weekly fall in food inflation would give little cheer to policymakers as the recent fuel price hike could push up by over 1 percentage point what is already the highest headline inflation level among the G20 major economies. Data released on Thursday showed the food price index rose an annual 12.63 percent in the year to June 26, slower than the previous week’s 12.92 percent, largely as prices in the year-ago period were high. The fuel price index went up by 18.02 percent during the period, compared with the previous week’s 12.90 percent. The index will see another jump in its next reading, with the government having raised fuel prices from June 26.

The primary articles index rose by 16.08 percent, compared with 14.75 percent in the previous week. Following the fuel price decision, the RBI lifted its key rates earlier-than-expected by 25 basis points, the third hike so far this year, as it struggles to bring down inflation that a senior government official said could hit 11 percent in June. "When the full pass-through of the hike comes, there will be more of an impact on the prices of commodities," N.R. Bhanumurthy, an economist with New Delhi-based think tank National Institute of Public Finance and Policy said. "I would expect another 25 basis points hike in the July 27 review and after that one more round of an off-cycle hike."

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Monsoon covers all India, brightens crop outlook

Reuters | Tue Jul 6, 2010 | 5:24pm IST

India’s annual monsoon, crucial for a rebound in farm output after last year’s drought, has rapidly advanced to cover the entire country, boosting crop sowing and likely tempering food price inflation. The weather office has forecast widespread rains in the cane- and rice-growing regions in the north and in the oilseed-growing areas in the central and western parts. Rainfall was 16 percent below normal in June, when the monsoon did not advance beyond central India for two weeks, but heavy showers in the past week have narrowed the deficit to 13 percent. "The monsoon has covered the entire country by about nine days ahead of schedule," said B.P. Yadav, director at the India Meteorological Department.

The revival of monsoon rains, the main source of water for 60 percent Indian farms, will lift soybean and groundnut crops in the world’s top vegetable oils importer and help the cane crop in the Uttar Pradesh state, which produces half the cane in the world’s top sugar consumer. The weather office expects total June-September rainfall to be normal despite the June deficit. But forecasters and analysts said the rapid progress of rains in recent days was not too significant; because last year the monsoon had covered the entire country by July 3 and India still face the worst drought in 37 years. "It’s too early to say that the entire season will have a normal monsoon," said D.K. Joshi, principal economist at CRISIL, a rating agency. "The development is positive and it will at least curb inflationary expectations on food," he said.


Last year’s draught has led to a surge in food prices, with the headline inflation rate hitting above 10 percent in May and prompting the central bank to raise interest rates by 25 basis points in an inter-meeting move on Friday. High inflation has also triggered a series of protests including a successful national strike against high prices that 

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Winter-sown crop prospects encouraging – PM

Reuters | New Delhi | Fri Mar 5, 2010 | 2:00pm IST

Prime Minister Manmohan Singh India’s winter-sown crop prospects are "very encouraging", but the country needs to pay farmers a good price for their produce to boost output further, Prime Minister Manmohan Singh told parliament on Friday. A good harvest is likely to bring down food inflation, which accelerated to nearly 18 percent in late February from a year ago, and also put pressure on the government to export wheat and rice as official agencies do not have enough storage space.

The government, facing mounting criticism for rising food prices, is struggling to meet conflicting aims of controlling food inflation and trying to please farmers by paying them attractive prices. Singh said the government would take all practical measures to bring down food prices. He also said the economy, Asia’s third largest, would grow by at least 8 percent in the financial year that begins on April 1, after expanding 7.2-7.5 percent in 2009/10.

Govt to spend $9 bln to expand railways; eyes prices

Reuters | NEW DELHI | Wed Feb 24, 2010 | 4:33pm IST

The government unveiled a $9 billion plan on Wednesday to expand its creaky and overstretched railway system and cut rail freight rates on grain and kerosene, a move which could help ease growing inflationary pressures. The government plans to build more than 1,000 km (600 miles) of track and add 18,000 rail cars in the year to March 2011, Rail Minister Mamata Banerjee said as she presented the railway budget for the coming year to parliament. It will also permit private operators to invest in rail infrastructure and run special freight trains to ease transport bottlenecks which have long been a brake on India’s growth. The railway budget comes just two days ahead of India’s general budget on Friday and was closely watched by analysts to gauge the reformist appetite of the Congress party government, whose voter base is heavily rural and poor.

With Asia’s third-largest economy recovering briskly from the global downturn and inflation mounting, financial markets are looking to the government to balance its desire to continue nurturing growth while restoring the health of public finances. “Should commercial viability be the only criteria (for railway expansion) or should social responsibility be an important consideration? I prefer the latter,” Banerjee,      Continue reading

Food prices accelerate again, rate hike bets on

Reuters | New Delhi | Thu Feb 18, 2010 | 2:07pm IST

India’s food inflation picked up for the fourth straight week in early February, heightening worries it was driving headline inflation past official forecasts and increasing the chance of the Reserve Bank of India (RBI) pushing up rates. Food prices rose 17.97 percent in the 12 months to Feb. 6, after an annual rise of 17.94 percent in the previous week, data released on Thursday showed. The fuel price index rose an annual 9.89 percent in the same week, down from a rise of 10.4 percent on year the previous week. Rising prices are a huge headache for the Congress-led government, particularly high food prices that may overshadow government efforts to cut spending and the fiscal deficit in a Feb. 26 budget. Climbing food and fuel costs along with a pickup in manufacturing prices are expected to push headline wholesale price inflation (WPI) from 8.56 percent in January to 10 percent by March, according to some analysts and India’s chief statistician Pronab Sen.

Government bonds showed little reaction to the data given that markets have already priced in a rise in the headline inflation to double digits and a 25 to 50 basis point rise in policy rates in April. At 0747 GMT, yield on the 10-year benchmark bond was at 7.89 percent, unchanged      Continue reading

Food inflation picks up pace; govt steps seen

Reuters | New Delhi | Thu Feb 4, 2010 | 1:56pm IST

Annual food inflation picked-up pace for the second consecutive week, strengthening the case for more fiscal steps in the federal budget to tame prices after the Reserve Bank tightened monetary policy last week. Analysts said any hike in petrol and diesel prices as suggested by a government panel on Wednesday would further drive broader inflation. High food prices, resulting in part from a poor harvest of summer-sown crops after the worst monsoon in nearly three decades, are spilling into broader inflation, which some economists say could reach double-digits by the end of the fiscal year in March. “If fuel prices are freed, that will lead to increase in fuel, food and wholesale price inflation, though politically I don’t see that happening as of now,” said Bibek Debroy, an economist at Centre for Policy Research, a Delhi-based think tank.

The food price index rose 17.56 percent in the 12 months to Jan. 23, higher than an annual rise of 17.40 percent in the previous week, data released on Thursday showed. The fuel index rose to an annual 5.88 percent, higher than an annual rise of 5.70 percent in the previous week. Prime Minister Manmohan Singh, under pressure over high food prices, has scheduled a meeting of state chief ministers on Saturday       Continue reading

RBI lifts cash reserve ratio holds rates

Reuters | Mumbai | Fri Jan 29, 2010 | 1:55pm IST

(Click to enlarge)

The Reserve Bank of India (RBI) surprised markets by raising banks’ cash reserve requirements by more than expected and warned of mounting inflation, suggesting its next move may be an interest rate rise. The Reserve Bank of India (RBI) kept short-term interest rates steady at its quarterly policy review on Friday and warned that monetary policy would be ineffective unless the government rolls back its borrowing, on track to hit a record 4.5 trillion rupees ($97 billion) this fiscal year. The RBI lifted the reserve ratio by 75 basis points rather than by up to half a percentage point as pencilled in by markets, joining other Asian central banks in gradual tightening of loose monetary policies.

On Thursday, the Philippines raised a rate on a short-term lending facility, and this month China started to tighten policy by raising banks’ reserve requirements, clamping down on loan growth and accepting higher yields at bill auctions. Despite rising inflationary pressures, the government has pressured the RBI to hold off raising rates, saying it would undermine economic recovery, hurt only slowly picking up bank lending and spark potentially destabilising capital inflows. “An increased confidence in recovery has encouraged RBI to clearly and explicitly shift their stance from ‘managing the crisis’ to ‘managing the recovery’,” said Deepali Bhargava, economist at ING VYSYA Bank in MUMBAI.     Continue reading

Govt faces food price discontent, violent protests

Reuters | New Delhi | Thu Jan 28, 2010 | 3:14pm IST

Violence erupted against rising food prices in Bihar, one of the country’s poorest states, on Thursday, heaping more political pressure on the government to focus on inflation rather than growth and financial reform. Mobs stoned trains and jammed roads with burning tyres in eastern Bihar, trying to enforce a day-long shutdown. Shops, offices and schools remained closed on Thursday, when official data showed that food prices in Asia’s third-largest economy rose an annual 17.4 percent in mid-January.  At least 12 passengers were injured when angry crowds stoned a train in Hajipur town, while thousands marched in the street in different parts of the state asking shops to shutter.

“Their anger is natural,” said Lalu Prasad, head of the Rashtriya Janata Dal (RJD) party, the state’s main opposition, referring to rising food prices. Food prices have soared because last year’s monsoon rains, which irrigate 60 percent of the country’s farms, were the worst in 37 years. Higher prices paid by government agencies to buy grains from farmers have also helped push the headline inflation rate to 7.31 percent in December, the highest in a year. Inflation and a high fiscal deficit are major risks to the country’s ambitious plan to return economic     Continue reading

Finance Ministry signals RBI: no need to hike rates – report

Reuters | New Delhi | Mon Jan 11, 2010 | 12:58pm IST

The finance ministry backs administrative steps to tame inflation and wants hike in policy rates only if food inflation escalates into general inflation, a media report said on Monday quoting the finance secretary. “We should be prepared to use generalised measures such as tightening liquidity through calibrated increase in cash reserve ratio and policy rates only in the event of the current food price inflation escalating into a general inflation,” the Indian Express newspaper said quoting Finance Secretary Ashok Chawla. The comments were in a proposal submitted to the Cabinet Committee on Prices, which is likely to meet this week, the report said. Chawla could not be reached to confirm the report.

“Considering that the high level of inflation is currently confined to food items, possibly there is nothing special which can be done on the demand side,” Chawla said in the proposal, the paper reported. “In order to augment supplies, all import duties may be suspended for the time being, maybe till the end of the current financial year,” the paper quoted Chawla as saying. The finance secretary identified rice, wheat, pulses, potatoes, onion, fruits, milk, mineral oils, sugar and oil cakes as the “commodities of concern,” the report added. The Reserve Bank of India’s next monetary policy review is due on Jan. 29, although it can change policy at any time. Food prices have soared after crops were hit by a weak monsoon and then flooding in parts of the country. Annual food price inflation was 18.22 percent as at Dec. 26, down from 19.83 percent in the previous week.

Govt to consider imports to boost food supply – FM

Reuters | Thu Dec 17, 2009 | 2:43pm IST

A vendor arranges vegetables at a market in Siliguri in this December 2008 file photo.

The finance minister said on Thursday that rising food prices was an area of concern and would consider imports to augment food supply. “Food prices are going up, this is an area of concern. We have to take some appropriate measures… but best could be done by augmenting supply through imports,” Pranab Mukherjee told reporters.

India’s food prices rose 19.95 percent in first week of December from a year earlier, its fastest in 2009, and adding pressure on the central bank to tighten monetary policy.