New Delhi: As food inflation surged to 18.32%, a top adviser in the finance ministry today agreed with home minister P Chidambaram that the government does not have all the tools to control food prices since it is an enabling body, reports PTI.
"Absolutely," chief economic adviser Kaushik Basu told reporters when asked whether the government does not have all the tools to control food prices.
P Chidambaram, who had served as finance minister in the previous UPA regime, had yesterday wondered whether the government has all the tools to rein in high food prices.
"... Nor am I sure whether we have at our hand all the tools to control inflation. Some say we do, some say we don't (have tools to check price rise). At least in case of food inflation, I have not heard anyone arguing convincingly that we have all the tools to control food inflation," the home minister had said.
Mr Basu said, "I mean this is a huge country in terms of population and land area. It is an utter mistake to think that it is fully within the control of the government to move prices of food up and down."
"Government is just an enabling body, there are little local bodies taking decisions, there are private players taking decisions, farmers taking decisions ... Government can give signals, can intervene strategically to keep the situation as much under control as possible," he said.
While stating that food inflation at 18.32% is not comfortable, Mr Basu said the situation is being watched and appropriate action will be taken. He also said that the spurt in food inflation was expected, but not to the extent of 18.32%, recorded for the week ended 25th December.
He said the movement of onion, whose price rise resulted in surge in inflation, should be facilitated to bring down rates.
Mr Basu said he will emphasise on facilitating the onion movement at a meeting called by cabinet secretary KM Chandrasekhar to take stock of prices later today.
When asked that the government did not take steps when onion prices were at Rs40 per kg, and woke up only when the rates shot up to Rs75-Rs80 a kg, Mr Basu said, "I am not denying that there are occasions when slightly earlier moves could have been made, no two ways about that."
He, however, cautioned against using any blunt instrument like arbitrary fixing of prices to tame exceptionally high prices, as such a move results in shortage of commodities and retard growth.
"There has been increase in prices. These have to be tackled. True. But, we cannot tackle them with blunt instruments, it will lead to slow down in growth," he said.
Mr Basu said though food inflation is going up, the overall trend is southward.
"So, the situation (food inflation) is not good, not comfortable. We are watching it ... but the overall trend is downward one and we are going through a bit of rough patch over last few weeks," he added.
He said while overall December inflation would be higher than 7.48% in the previous month, it would decline in next one month.
The finance ministry has already revised its overall inflation target to 6.5% by the March end, from 6% as projected in the mid-year analysis tabled in Parliament last month.
The week-based inflation number, which is the highest for 2010 so far, was spiked by the rising onion and vegetable prices. Food inflation for the preceding week was recorded at 14.44%.
While vegetables became costlier by 58.58%, onion prices rose by 82.47% on an annual basis. On a weekly basis, onion rates rose by 23.01% in the wholesale markets.
Mr Basu said food inflation data released today was reflective of prices, before government steps to check rising prices of onion were announced.
The government banned onion exports and removed customs and countervailing duties on the bulb.
"These steps had moderating impact on onion prices," he added.
However, Pakistan has already stopped export of onions to India, a step that can blunt the impact of such measures.
The market opened with modest gains this morning, upbeat on the economic recovery across the world. However, profit-taking, along with a steep rise in the weekly food inflation numbers, kept the indices range-bound and they closed lower for a third day.
The market opened up, then fell and stayed down through most of the day, breaking the support of 20,200 to close at 20,184.74, a loss of 116.36 points. The Nifty closed at 6,048.25, down 31.55 points. This is a seven-day closing low for the two indices. The three-day drop in the Sensex shows that the rally, which began on 10 December 2010, is losing strength. The next support for the Sensex lies at 20,000 (Nifty at 5,990). The indices are consistently making lower lows and lower highs. Also, institutional investors seem to be reluctant to commit money at current levels. On 5th January foreign institutional investors pulled out Rs240.30 crore and domestic institutions were also net sellers. It has been a slow and laboured rally from 10th December, but now the bulls are losing grip.
The market opened with gains of nearly 100 points this morning, tracking positive global cues. However, choppiness ahead of the release of the weekly food inflation numbers drove the indices into the red in the first hour itself. While the market was range-bound in negative terrain, a sharp spike in the weekly food inflation data pushed it lower in noon trade.
The market lacked conviction and stayed in a narrow range in the post-noon session, touching the day's low. It closed slightly higher after a minor recovery, but a negative close all the same.
The bellwether Sensex touched an intraday high of 20,425.85 in initial trade and a low of 20,107.17. The Nifty swung between a high-low of 6,116.15 and 6,022.30.
Declining stocks outnumbered the gainers. The Sensex had 19 losers against 11 gainers, while the Nifty closed with 33 decliners and 17 advancers. The broader indices underperformed the Sensex with the BSE Mid-cap index tanking 1.18% and the BSE Small-cap index declining 1.04%.
The top performers on the Sensex were Hindalco Industries (up 1.70%), TCS (up 1.39%), NTPC (up 1.33%), Bharti Airtel (up 0.96%) and Reliance Industries (up 0.94%). The major losers were Sterlite Industries (down 3.80%), Bajaj Auto (down 3.60%), ONGC (down 3.17%), Cipla (down 3.05%) and Maruti Suzuki (down 2.99%).
BSE IT (up 0.47%) and BSE TECk (up 0.37%) were the only gainers in the sectoral space. BSE Realty (down 2.41%), BSE Capital Goods (down 1.88%) and BSE Auto (down 1.59%) ended at the bottom of the sectoral table.
Soaring vegetable prices led to a sharp rise in food inflation at 18.32% for the week ended 25th December, from 14.44% in the previous week. The development could prompt the Reserve Bank of India to tighten monetary policy to check further escalation in commodity costs. The number is close to the high 19.90% of a year ago.
Asian markets ended mixed on Thursday as the surge in the value of the dollar boosted Japanese stocks, while Chinese stocks ended lower on profit booking. Jitters ahead of quarterly corporate earnings reports also played on investor sentiments.
The Hang Seng gained 0.12%, the KLSE Composite rose 0.14%, the Nikkei 225 surged 1.44%, the Straits Times advanced 0.78% and the Taiwan Weighted was up 0.42%. On the other hand, the Shanghai Composite declined 0.51%, the Jakarta Composite tumbled 1.25% and the Seoul Composite fell 0.24% in trade today.
Back home, in a bid to boost clean energy generation in the country, the government has amended the Power Tariff Policy, which mandates that states should source at least 3% of their total power purchases from solar energy by 2022.
As per the amendment, the power purchased by the state electricity boards or other state utilities will be complemented by solar specific Renewable Energy Certificate (REC) mechanism, through which solar power generation companies will sell certificates to the buyers.
Renewable energy major Suzlon (down 1.56%) has bagged a $191 million deal from UK-based Vedanta Group to set up, operate and maintain 150MW of wind farms for Hindustan Zinc, a Vedanta Group company.
The wind farms will be set up in Karnataka, Rajasthan, Tamil Nadu and Maharashtra. The first phase of the project will involve a capacity of 50MW and it is expected to be completed by March 2011. The second and final phase of 100MW will be progressively completed by September 2011.
Omnitech Infosolutions (down 6.43%), a business availability and business continuity services provider, has acquired Avensus Netherland BV for $9 million. Avensus offers managed IT services and security, storage and virtualisation solutions to BFSI, healthcare, and government sectors. The company will pay $4.8 million as an upfront payment and the rest will be a deferred payment and earnout which shall be paid over a period of three years.
India's largest power producer, National Thermal Power Corporation (NTPC), (up 1.33%) is conducting a feasibility study in the Maldives to set up solar power projects. The move is expected to enhance the thermal power generator's green footprint.
Meanwhile, NTPC plans to add 105MW of electricity capacity through five solar power projects in India in the next 2-3 years.
New Delhi: Rating agency Fitch today said the continued overcapacity in the cement sector will exert further pricing pressure on the commodity in 2011, leading to squeezed margins for the manufacturers, reports PTI.
"The widening demand-supply gap is expected to affect capacity utilisation levels of cement companies. We expect further pricing pressure in the wake of the lower capacity utilisation," the rating agency said in a report today.
Cement firms are facing pricing pressure since May 2010 due to the over-capacity situation. The price of the commodity in the retail market is now hovering around Rs250 per bag of 50 kg in Mumbai, Rs210 in Delhi, Rs255 in Chennai and Rs240 in Kolkata, respectively.
India's installed cement manufacturing capacity stood at 291.3 million tonnes per annum (mtpa) in FY'10. Around 34 mtpa capacity addition is expected to take place in FY'11 taking the tally to 325.2 mtpa. Demand, on the other hand, is expected to rise by 17 mtpa to 217.6 mtpa in FY11.
"We forecast around 10% demand growth and over 12% capacity addition in 2011. The overcapacity is likely to result in pricing and consequently margin pressures for most cement companies," it said.
The southern region with large demand-supply gap, which is likely to widen further, will witness particularly heavy pricing pressure, followed by the west and east, the rating agency added.
Cement firms' revenues were weak in the June-September 2010 on account of lower prices and are expected to remain subdued with the prices declining.
"Furthermore, raw material and freight costs have also been on a rising trend further affecting the profitability of the cement companies. We expect profitability to remain under pressure in 2011 with prices and costs remaining largely at current levels," Fitch said.
The rating agency did not paint any rosy picture for FY' 12 and FY' 13, either projecting around 68 MT more cement making capacity addition in FY'12 and FY'13 together. The cumulative demand growth, projected during the two fiscals, is only 50 mtpa.