Fuel price hike, duty cut to help contain inflation: Plan panel chief

According to deputy chairman of the Planning Commission Montek Singh Ahluwalia, the decision to cut duty, was a conscious decision to lose some revenue to moderate the impact (of the fuel price hike on the common man)

New Delhi: Defending the government’s decision to raise prices of petroleum products, the Plan panel today said it would suck money from the system and ease inflationary pressure in the long run, reports PTI.

“As we are raising the prices, the move will pull money away from the system. That would have a softening impact (on inflation),” Planning Commission deputy chairman Montek Singh Ahluwalia told reporters.

He further said, “I don’t agree with the view that if we had done nothing, inflation would have been lower. If we had done nothing, then the hidden inflation would have been eating away.”

The decision to cut duty, he said “was a conscious decision to lose some revenue to moderate the impact (of the fuel price hike on the common man)”.

The government had last week hiked diesel, kerosene and cooking gas prices by Rs3 per litre, Rs2 per litre and Rs50 per cylinder, respectively.

In addition, the government also reduced customs duty on petroleum products to 2.5% from 7.5%, which would result in an annual revenue loss of Rs49,000 crore.

Excise duty on diesel was also reduced from Rs4.60 per litre to Rs2 per litre.

During the remaining nine months of the fiscal, the Centre and states will lose around Rs24,000 crore and Rs11,000 crore, respectively, due to the duty cut on petroleum products.

The Plan panel chief said the rise in prices of fuel items would suck liquidity from the system, leading to a moderation in inflation numbers.

Headline inflation, as measured in terms of the wholesale price index, stood at 9.06% in May and experts said it will breach the double-digit mark by July on account of the fuel price rise.

Regarding the impact of the fuel price hike on the fiscal deficit, Mr Ahluwalia said: “They (government) have quantified some revenue losses. What happens to the fiscal deficit depends on many other things. I am sure the finance ministry is looking at that. And I think they are shortly going to submit to Parliament some sort of medium assessment on the fiscal position.”

He further said, “My personal view is that if we are looking ahead and if India faces a situation of rising energy prices, we should adjust ourselves to passing on the fuel prices, because if we have fail to do so, we will be weakening the economy.”

Asked his views about when the inflation numbers are likely to moderate, he refused to make any guess.

“The finance ministry has said that if the monsoon is normal and agricultural production is good, then price pressure will decrease. But I do not want to give a forecast,” the Plan panel chief said.

Mr Ahluwalia also called for a drastic reappraisal of the subsidy system in the country.

“We in the Planning Commission... it is our view that except for strictly targeted subsidies, I don’t think we can afford a system where we have subsidisation of fuel in any extensive way.

“The increase in prices has been a very modest increase.

It has not covered the full gap necessary. So if we have to implement the kind of energy policy that makes sense in the medium-term, we have to somehow or the other pass on the full burden unless oil prices fall,” he said.

Regarding the draft Food Security Bill, the Plan panel chief said: “The Department of Food and Civil Supplies is supposed to bring its proposals before the GoM... I know they are working on it.”

Asked if the Bill is likely to be implemented this fiscal, he refused to commit on a timeframe.

“As far as Food Security Act is concerned, the Act also depends on the new poverty numbers. So whether you pass it now or you pass it a little later, I don’t think the poverty list is going to be available for some time. So I don’t think the date of passage is crucial. What is important is so get a clear idea of what is it going to be,” he said.


RBI flip-flops on customer service report

RTI query reveals that despite inclusion of voluminous views in the report on customer service which is ready, the committee chairman continues to hold it back

The confusion and curiosity surrounding the Reserve Bank of India's (RBI) report on customer service headed by M Damodaran, continues. Based on information received under the Right to Information (RTI) Act filed by Mumbai-based activist Nagesh Kini, it is now clear that extensive work has gone into preparing the report especially by two committee members MS Sundararajan and S Gopalkrishnan, yet for reasons not stated, it remains buried.

It its response to four questions, the RBI rather blandly states repeatedly that the report is yet to be transmitted. The applicant seeks to know the dates on which each member and the chairman of the committee signed the report, the date when the report is to be submitted to the RBI, and if it has already been submitted, the date on which the report is expected to be put in the public domain.

It is over a year now that several people submitted their recommendations to the committee, but there is no sign of the report yet. Which is why Mr Kini evoked the RTI to find out the status on the report.

In its reply to the RTI query by Mr Kini, the RBI says that a time frame of four months from the date of the first meeting of the committee was set for submission of the report. This was extended by three months. Considering this, the report should have been out in public domain by now. It's been over 12 months since the first meeting was held on 15 June 2010, but the report has not yet been released.

Moneylife had reported that the report is ready, but the committee chairman M Damodaran is holding it back for reasons best known to him. Even the committee members did not seem to be aware about the details. (Read, "The curious case of the Damodaran Committee's report on customer services: Why is it still in limbo?")The committee was constituted in June last year to review the system of customer service and grievance redressal by banks. The committee was expected to undertake a strict review of the existing system of the Banking Ombudsman Scheme and customer service in banks, including the approach, attitude and fair treatment to customers in retail, small and pensioners segments.

The committee was also asked to evaluate the existing system of grievance redressal mechanism prevalent in banks, the structure and efficacy, and recommend measures for expeditious resolution of complaints.

Mr Kini's RTI query also sought to know the number of responses received by the committee from the public and NGOs. The RBI said that over a thousand responses were received. It also said that the number of personal submissions has not been tracked separately.

In a circular dated 16 June 2010, the RBI had invited suggestions to be submitted to the Damodaran committee on customer services by 15 July 2010. Mr Kini had also sent his recommendations.

The reply from the RBI also said that the committee conducted as many as 44 meetings, with different stakeholders such as industry associations, bank unions, and individuals among others, across the country. Interestingly, the chairman and committee members mostly attended the meetings that were conducted in Mumbai, while only two members did most of the hard work of visiting other cities. The meetings in other cities were attended mainly by three members of the committee, namely MS Sundararajan, and S Gopalkrishnan. Curiously, a large number of meetings (19 out of 44 meetings) were attended by other representatives of the RBI-other than the committee members-such as regional directors and banking ombudsman.

According to the RTI reply, the committee has also included comments of stakeholders based in the North-East, such as Sikkim, Guwahati and Mizoram. Mr Damodaran, the committee chairman, apart from attending the meetings in Mumbai, was present at only three of the meetings that were held outside Mumbai, in Delhi, Kochi and Tripura.

Experts point out that, this is the first time that any committee has sought recommendations from the people based in such remote and backward areas of the country, indicating that the report would have extensive information.

As per the RBI's reply, there were only two meetings held to discuss the inputs regarding usage of technology for customer care and protection. Interestingly, both of these were only attended by one committee member, MV Nair.

Speaking to Moneylife, Mr Kini said, "Our regulators appoint high-level committees and keep their reports in cold storage. This is not a good sign."


Tata Steel expects steel demand to increase by 11% in FY11-12

Steel demand in India grew by 9.9% in 2010-11 to reach to over 65 MT

The spike in interest rate might not impact steel demand in the country in the current fiscal as it is slated to grow by up to 11% backed by higher infrastructure spendings, Tata Steel said.

Speaking to reporters last evening, Tata Steel managing director HR Nerurkar said that there was a bit of concern regarding commodity inflation, but that has not reached to a proportion which could be dubbed as "alarming".

The apex bank, to rein in the runaway inflation, has increased the policy rates 10 times since March last year pushing headline inflation to over nine per cent in May this year.

Nerurkar said his hope stems from the fact that the construction was continuing and infrastructure projects, which consume most of the alloys, were also in the upswing. Steel demand in India grew by 9.9% in 2010-11 to reach to over 65 MT.

"10% growth in steel demand in India is feasible as long as GDP grows at around eight per cent. This year, I believe, steel demand will grow by 9%-11%," he said.

According to Joint Plant Committee, India's consumption of steel in April this year was at 5.030 million tonnes, up 1.8% over the same month last year.

However, according to brokerage firm IDFC Securities, sales volume of the country's steel firms were hit during April and May by dealer de-stocking and the same was also likely to continue in the current month.

"Demand is weakening. Investment-led demand has consistently remained weak over the last several quarters. Consumption-led demand growth is also showing signs of weakness," the brokerage firm said.

"Unless long products' (mainly used in construction) demand improves in H2 FY12, we expect steel demand in India to grow by just 5%-6% against the earlier general estimate of a double-digit growth," it added.

On Wednesday, Tata Steel ended 2.38% up at Rs601.30 on the Bombay Stock Exchange, while the benchmark Sensex gained 1.09% to 18,693.86.


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