If the proposal is approved, every household will get only 4-6 LPG cylinders at subsidised price of Rs395.35 in Delhi and they will have to pay market price of Rs666 per cylinder for any requirement beyond that
New Delhi: An Empowered Group of Ministers (EGoM), headed by finance minister Pranab Mukherjee, is likely to consider on Friday limiting supply of subsidised liquefied petroleum gas (LPG) cylinders to 4-6 per household in a year, reports PTI.
The EGoM in its last meeting on 8th August considered the recommendations of Task Force on Direct Transfer of Subsidies on Kerosene, LPG and Fertiliser but deferred a decision on limiting supply of subsidised LPG, official sources said.
The panel is now slated to meet on 16th September.
Sources said if approved every household will get only 4-6 LPG cylinders at subsidised price of Rs395.35 in Delhi and they will have to pay market price of Rs666 per cylinder for any requirement beyond that.
The limited supply of subsidised LPG would be for those who own a car, two-wheeler, house or figure in the income-tax list.
Each 14.2-kg bottle of LPG normally lasts a household 45-60 days and based on this calculation a maximum of six cylinders are considered enough to see a family through the year.
At present, records of LPG distributors of public sector companies shows that a vast number of households are taking as many as 20 to 30 cylinders per household each year.
This suggests that large scale diversion of subsidised cooking gas is taking place for use in commercial establishments, such as restaurants and dhabas and as auto fuel.
LPG for commercial use is sold at the market price and packed in different cylinders.
Sources said limiting supply of subsidised LPG cylinders would help cut down losses that state-owned oil firms incur now on selling the fuel at government controlled rates.
Indian Oil, Bharat Petroleum and Hindustan Petroleum lose about Rs63 crore per day on selling domestic LPG below cost.
The EGoM may also consider the revenue loss that state firms incur on selling not just LPG but also diesel and kerosene.
The three firms lose Rs5.14 a litre on diesel and Rs24.42 per like on kerosene. At current rate, they are projected to post a combined revenue loss of Rs108,746 crore in the current fiscal.
The EGoM, sources said, may decide on how this loss would be bridged. The government currently roughly half the revenue loss and another one-third comes from upstream firms like ONGC.
The panel may decide if the current revenue loss sharing formula should continue or be altered.
The central bank is still worried about high inflation, but with IIP tumbling to a 21-month low, a further slowdown in domestic demand and the turbulent global environment has increased the chances that the RBI might take a pause
The Reserve Bank of India (RBI) may not go in for another rate hike, or it may increase the rates by a minimal 25 basis points (bps), when it meets to review policy on Friday.
A majority of economists and brokerages believe that over the past several months, the central bank has focused on controlling inflation, albeit unsuccessfully, and with inflation still above the acceptable levels, the RBI could yet hike rates by 25 bps. However, there are others who feel that with inflation coming off sequentially, the slowdown in domestic demand and the turbulent global environment has increased the option value for the RBI to take a pause after increasing rates 11 times over the past 18 months.
"We expect the RBI's policy statement to remain hawkish-with a reference to inflation remaining the chief concern," says Tushar Poddar, economist, Goldman Sachs. The RBI's FY12 growth target of 8% and end-March 2012 inflation target of 7%, we think are likely to surprise on the downside. The RBI may, therefore, mention downside risks to its growth target, but may not explicitly lower it." He says that the bank will likely suggest that it is on a wait-and-watch mode, rather than explicitly signal the end of the tightening cycle.
Since March 2010, the central bank has been aggressive in its rate hikes, raising its effective policy rate to 8% from 3.25%. The pace of tightening accelerated in the summer, when the RBI tightened rates by 125 bps-raising it by 50 bps in May, 25 bps in June, and again by 50 bps in July. Both rate hikes of 50 bps were over market expectations.
Nomura Global Economics expects the RBI to hike rates by 25 bps due to elevated inflation pressure. "However, as signs of a moderation in growth are becoming more evident, implying weaker inflation pressures ahead, we believe it will be difficult for the RBI to maintain its anti-inflation bias for an extended period. We do not expect the RBI to hike rates again in this cycle after 16th September," the brokerage says.
Of course, there are enough reasons why the RBI could be tempted to hike rates yet again. Headline inflation, on a year-on-year (y-o-y) basis, has remained high and could potentially be aggravated by a big upside surprise in the August WPI inflation reading, scheduled to be announced on Wednesday. In addition, there is inertia in policy-making; while on the hiking cycle, the decision to take a pause would be a big one.
For the week ended 27th August, food inflation fell to 9.6% from double digits in the previous week, with prices of all items, barring pulses and wheat, going up on an annual basis. The decline could also be attributed to the high inflation rate of over 14% in the corresponding year-ago period, a phenomenon dubbed as the 'high base effect' in economic parlance.
The RBI and the Prime Minister's Economic Advisory Council (PMEAC) had projected headline inflation to remain high, at about 9% till October. In its economic outlook report for 2011-12 published in August, the PMEAC said that while pressure from food inflation had fallen in recent months, the rate of price rise remained quite high, with the possibility of a further surge in the coming months.
IDFC Securities feels that despite the concerns over slower growth, the rate hikes will continue. "With the three-month moving average of IIP falling to 6% y-o-y (the lowest in 19 months), concerns on the extent of growth moderation would be back to the fore. However, we believe it is unlikely to deter the RBI from its anti-inflationary stance. We expect RBI to continue with its rate hike cycle and expect another 25 bps hike in the monetary policy meeting in September 2011," the brokerage said in a report.
The July Index of Industrial Production (IIP) has been the lowest in 21 months. The 3.3% growth was significantly lower than the 8.8% recorded in June 2011. The sharp dip was caused by weak manufacturing and a steep decline in the capital goods sector. Year-to-date, IIP growth in FY12 stands at 5.8%, as against 9.7% in the corresponding period of FY11.
Sharekhan says, "IIP growth declined mainly due to a steep fall of 15.2% y-o-y in capital goods growth. The three-month moving average stands at 6%, showing broader signs of moderation in the industrial activity. We expect the IIP numbers to remain subdued for the next two to three months due to rising pressure on the manufacturing sector on account of the rising interest rates and input costs." It believes that the recent developments in the global environment and the strong deterioration in the domestic growth parameters have increased the probability of an early reversal in the RBI's monetary policy stance.
Domestic demand is weakening significantly with nearly every activity indicator showing a slowdown. Especially over the past two months, auto sales have seen negative growth y-o-y, while the manufacturing PMI is down to 52.6 in August from 55.3 in June.
Over the past four months, the RBI has been increasing rates quite aggressively. Between May to July this year alone, the central bank has increased rates by 125 basis points, 50 bps in May, 25 bps in June, and again by 50 bps in July. However, the effect of these rate hikes would reflect only in the second half of FY12 or post-September.
In this scenario, if the RBI decides to go for a hike once again, the impact would be felt only after two-three quarters, by which time inflation is likely to be significantly weaker according to the RBI's own forecasts.
Moreover, the global uncertainty and volatility in stock markets have already tightened financial conditions by more than what a 25bps or 50bps rate hike could probably achieve. This put together, gives the RBI ample reason to take a break from the rate-hike cycle.
Yes, the central bank appears to be still worried over high inflation, but with IIP tumbling to a 21-month low, a further slowdown in domestic demand and the turbulent global environment may have increased the chances that RBI governor Dr D Subbarao would press the pause button now.
"Funding through the PE route is lower compared to the previous year, as fund houses are cautious about investing into realty due to a dip in general demand and uncertainty over timely completion of the projects by developers," said Om Chaudhry, chief executive officer of Fire Capital
New Delhi: Private equity (PE) investment in India's real estate sector declined by around 20.2% to $831 million (about Rs3,740 crore) in the first five months this fiscal due to sluggish demand, reports PTI.
Factors like the tight availability of funds with PE players and delays in project execution prompted fund houses to adopt a cautious approach toward the real estate sector, according to data compiled by research firm Venture Intelligence.
PE players had pumped $1,041 million (around Rs4,685 crore) into the realty sector during the April-August period of the previous fiscal, as per the data.
"Funding through the PE route is lower compared to the previous year, as fund houses are cautious about investing into realty due to a dip in general demand and uncertainty over timely completion of the projects by developers," said the chief executive officer of Fire Capital, Om Chaudhry, while commenting on the data.
The lower availability of funds with PE players was another reason behind the dip in investment figures, he said.
Mr Chaudhry also said repayment of funds raised during 2006-07 was likely to have reduced the corpus available with the fund houses.
"A lot of funds, which were raised during 2006, are due for return to investors in this year," he said.
The real estate sector is also suffering on account of declining flows from commercial banks and tightening of provisioning norms by the Reserve Bank of India.