Government’s options to deal with slowdown limited: FM

Speaking at the Delhi Economics Conclave in Delhi, finance minister Pranab Mukherjee noted that major economies worldwide, particularly those in Europe, have not yet emerged from the slowdown in late 2008 despite the aggressive use of fiscal and monetary tools

New Delhi: Concerned over the deteriorating global economic situation, finance minister Pranab Mukherjee Wednesday said the government has limited options to combat the slowdown, reports PTI.

Speaking at the Delhi Economics Conclave here, he noted that major economies worldwide, particularly those in Europe, have not yet emerged from the slowdown in late 2008 despite the aggressive use of fiscal and monetary tools.

“All these (slowdown) have happened despite the aggressive use of both fiscal and monetary policy tools... it poses serious problem for policymakers. Going forward, it limits our options in dealing with the emerging situation,” Mr Mukherjee said.

India’s gross domestic product (GDP) growth rate slowed to 6.9% in the second quarter of 2011-12 from 8.4% in the corresponding period of the previous year.

In the backdrop of the continued uncertainty in the global economy, coupled with domestic factors, the government last week slashed India’s GDP growth forecast for the current fiscal to 7.5% (plus/minus 0.25%) from the earlier estimate of around 9%.

When the economic slowdown occurred in 2008, India—like other countries—had rolled out a stimulus package of about Rs1.86 lakh crore, or 3% of the GDP, to provide a cushion to the domestic industry against external shocks.

Mr Mukherjee’s statement comes just days before the Reserve Bank of India (RBI) is scheduled to review the monetary policy.

Talking about the depreciating rupee, Mr Mukherjee said in the wake of the global crisis of 2008, India received excessive capital inflows, leading to appreciation of the domestic currency.

“However, ...with the unfolding euro zone crisis, a matter of concern at present, it has reversed such (capital inflows) growth, leading to increased currency volatility...

We have witnessed sharp depreciation of the rupee against the dollar in the last few months,” he said.

The rupee tanked 52 paise to a record low of Rs53.75 per US dollar in early trade Wednesday.

On persistent high inflation, the finance minister said it “has been a major policy concern for the last few years”.

He, however, expressed satisfaction that food inflation has started moderating. Food inflation declined to 6.6% for the week ended 26th November, whereas it stood at 12.21% for the week ended 22nd October.

Mr Mukherjee further said a slowdown in external demand has led to a deceleration in India’s exports growth, resulting in widening of the Current Account Deficit to about 3% of the GDP.

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Headline inflation eases to 9.11% in November

A marginal decline in inflation is good news amid the depressing scenario on the industrial production and rupee front. The a development may prompt the RBI to halt its monetary tightening strategy at its policy review on Friday

New Delhi: Moderating prices of essential food items like onions, potatoes and milk pulled down inflation marginally to 9.11% in November, a development that may prompt the Reserve Bank of India (RBI) to halt its monetary tightening strategy at its policy review on Friday, reports PTI.

Inflation, as measured by the Wholesale Price Index, stood at 9.73% in October 2011. It was recorded at 8.2% in November 2010.

A marginal decline in inflation is good news amid the depressing scenario on the industrial production and rupee front.

While industrial production plunged 5.1% in October, the rupee has fallen to an all-time low below Rs53 per dollar.

With inflation dropping, all eyes are now on the RBI’s monetary policy review scheduled for 16th December. The central bank has been hiking interest rates since March 2010 in its bid to tame inflation, but in the last review, the RBI had indicated it may not hike the rates in December.

As per the data released today, inflation in food articles dipped to 8.54% in the month under review from 10.14% in the same month last year. The rate of price rise in food items stood at 14.64% in October 2011.

On an annual basis, the rate of price rise in the primary articles segment also dropped to 8.53% in November from 14.67% in the same month last year. Inflation in the segment stood at 18.09% in October 2011.

The data also revealed that inflation in the manufactured products segment was 7.7% in the month under review.

In comparison, it was recorded at 5.02% in November 2010, and 7.6% in October 2011.

The data further revealed that rate of price rise in vegetables during the month under review stood at 12% in comparison to a 1.36% contraction in November 2010. Inflation in vegetables was as high as 21.76% in October 2011.

However, onion prices contracted by over 34% in November in contrast to an increase of 36.82% in the same month last year. Similarly, there was drop in the rate of price rise in potatoes and milk on a yearly basis.

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India likely to export more rice in the current year, says CRISIL

Indian rice millers with established overseas buyers and prudent working capital management practices can expect a windfall rice season at hand

The next 12 months augur well for India’s rice millers. Expectation of a bumper rice crop in India in the October 2011-September 2012 season, lifting of the ban on non-basmati rice exports and a weak production outlook for most rice-exporting countries may drive a sharp increase in India’s share in global rice trade. This is based on a CRISIL study of rice millers and exporters in the country. Depreciation in the value of the Indian rupee against the US dollar since September 2011 may also benefit rice exporters, as it makes India’s rice more competitive globally.

CRISIL expects the profitability of India’s rice millers to increase by 150 basis points. This depends on the proportion of exports in overall sales. However, given the working capital intensity of the rice industry, improvement in the millers’ business volumes may be restricted to the millers that have direct contacts with overseas buyers. Therefore, Indian rice millers with established overseas buyers and prudent working capital management practices can expect a windfall rice season at hand. The expected decline in rice production in leading rice exporting nations such as Thailand, Vietnam and Pakistan may also favour India’s exporters.

According to Mohit Makhija, senior manager, CRISIL Ratings, “Healthy export opportunities, low paddy prices and a favourable exchange rate will lead to improved profitability for rice millers in 2011-12. A CRISIL study on 170 rated rice millers indicates that higher rice exports will lead to improved profitability. While paddy prices in the current season are 25% lower than those of the previous year, the prices of milled rice are unlikely to reduce by the same proportion, given the low supplies from the leading rice-exporting nations.”

CRISIL believes that India’s share in the rice export market may triple to 21% in 2011-12 from 7% in 2010-11. The benevolent monsoon across rice cultivating states is expected to help India’s rice production reach100 million tonnes in 2011-12, up 6% over the previous year. According to Gurpreet Chhatwal, director, CRISIL Ratings, “We expect India’s rice exports to reach around 7 million tonnes in 2011-12, up from 2.2 million tonnes in 2010-11. The government’s decision to lift the ban on export of non-basmati rice in September 2011 could not have come at a more opportune time. The lifting of the ban may translate into additional $2 billion in export revenue for India’s rice millers and exporters in 2011-12.”

The rice surplus state of Punjab is likely to be an important player in rice exports. Incentives to non-basmati rice export by the state government has led to heavy paddy buying by private millers in the current buying season, with their crop purchase touching more than double of what they bought in the last season. Purchase by private millers so far have reached 3.63 lakh tonne in Kharif Marketing season 2011-12 against 1.91 lakh tonne lifted in the entire season last year, as per Food Corporation of India (FCI) data. Total paddy procurement in Punjab so far stood at 103.35 lakh tonne, with government agencies buying 96.5% of total arrival. Traders attributed the sudden jump in private purchase of paddy to sops given by the state government last month to boost non-basmati rice export from Punjab. Aiming to export 10 lakh tonne of non-basmati rice, Punjab allowed levy free private buying of non-basmati paddy to boost rice export.

Andhra Pradesh, also a rice surplus state, has an export target of 20 lakh tonnes of rice in the current season from Kakinada port.

While private rice millers are expected to do well, the government is not a spectator. The government has allowed the export of 10,000 tonnes of non-basmati rice to three African nations—Kenya, Somalia and Djibouti—through state-run FCI at economical rates. “Export of 10,000 tonnes of non-basmati rice to Horn of Africa (Kenya, Somalia & Djibouti) from the central pool stock of FCI at an economic cost has been permitted,” the Directorate General of Foreign Trade (DGFT) has said in a notification. The rice will be exported to these nations at an economical cost of Rs20,689.50 per tonne.

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