New Delhi: Promising to crack down on black-marketers and hoarders, the government on Thursday unveiled measures to check spiralling prices by continuing the ban on export of edible oils, pulses and non-basmati rice and it asked states to waive local taxes on essential commodities.
After two days of discussions chaired by prime minister Manmohan Singh, the government has constituted an inter-ministerial group, to be coordinated by chief economic advisor Kaushik Basu, to review overall inflation with particular reference to primary food articles, reports PTI.
In a statement issued by the prime minister's media advisor, the government admitted that food prices have frequently risen at "unacceptable rates" and that the "current bout of inflation is driven by a rise in prices of vegetables and fruits, which is more difficult to manage because they are not held in public stocks."
Attributing the rise in prices, especially onions, to unseasonal rain showers, the government said that fast growth of the economy, combined with the effect of several inclusiveness programmes, put greater income in the hands of the relatively poor, whose food consumption had increased. This has led to a rise in prices of milk, eggs, meat and fish.
On measures it plans to take, the government said it would act against hoarders and black-marketers manipulating market prices, to ensure the products reach markets in time to moderate prices.
"Cartelisation by large traders will be dealt with strictly. The states will be requested to ensure that such action is effectively taken under the Essential Commodities Act, 1955, and the Competition Act, 2002," the government said.
It said that import and export of all essential commodities would be reviewed on a regular basis. The government will "impose controls on exports and ease restrictions on imports, including tariff reduction where necessary, to improve domestic supplies."
Other measures include public sector undertakings intensifying the purchase of essential commodities, particularly edible oils and pulses and distribution through ration shops. The existing scheme of subsidised distribution of edible oils and pulses will continue.
The food inflation, measured by wholesale prices, for the week ended 1 January 2011, moderated slightly, but was still ruling high at 16.91%.
Earlier yesterday, finance minister Pranab Mukherjee said that "unnecessary" panic should be avoided. "We have analysed the situation. We have indicated what further steps we are going to take. We have also indicated that there should not be any unnecessary panic."
State governments would be urged to review Agricultural Produce Market Committee (APMC) Acts and in particular, consider exempting horticultural products from its purview. They would also be requested to consider waiving mandi tax, octroi and other local levies which impede the smooth movement of essential commodities, as well as reducing commission agent charges.
The Committee of Secretaries, headed by the cabinet secretary, will review the price situation with individual states. The government said it is monitoring the situation closely and it is committed to containing the adverse impact of any inflationary pressures on the common man.
The government stated that the only lasting solution to food inflation was in increasing agricultural productivity. Investment will be encouraged in supply-chains, including provision for cold storages, which will be dovetailed with organised retail chains.
The Department of Industrial Policy and Promotion, the Department of Food and Public Distribution and the Ministry of Food Processing Industries and the Planning Commission will jointly work out schemes in this regard.
Support will be extended to facilitate stocking of the bumper kharif crop, including augmentation of storage capacities and upgradation of godowns and other infrastructure.
New Delhi: Inflation shot up to 8.43% in December, from 7.48% in the previous month, as prices of certain food and non-food items continued to show an upward trend, according to official data announced today.
After moderating somewhat in November, the overall inflation-measured on the basis of wholesale prices-rose in December, as vegetables like onions, and other protein-based items became expensive.
With inflation showing no signs of moderation, it is widely expected that the Reserve Bank of India will raise key policy rates during its quarterly review of monetary policy on 25th January, reports PTI.
For October, the figure has been revised upwards to 9.12% from the provisional number of 8.58%.
It may be recalled that the food inflation, which accounts for over 14% in the overall WPI (wholesale price index) inflation, has remained high through December at 16.91%.
Worried over the uncontrolled rise in prices, the government yesterday announced measures to try and contain the price rise by a crackdown on hoarders and black-marketers and closely monitoring the export and import of food items.
According to WPI data published today, prices of primary articles (food, non-food articles and minerals) shot up by 16.46% on an annual basis. However, the prices of certain food items declined on a year-on-year basis.
While wheat became cheaper by 5.09%, pulses fell by 10.89% and the price of potatoes went down by 26.57%. During the month, fuel and power prices went up by 11.19%, while manufactured goods became more expensive by 4.46% on an annual basis.
Manufactured items have the highest weightage of 64.9% in the wholesale price index, and inflation is calculated on this basis. Within manufactured products, however, sugar prices eased by 9.91% and leather and leather goods by 1.23% on an annual basis.
Spiralling prices are making consumers cut expenses, while higher input costs are putting pressure on margins forcing manufacturers to increase prices
While the government's beloved aam admi is having nightmares with the scorching prices of grocery and vegetables, the fast-moving consumer goods sector is doing its best to maintain growth. With inflation showing no signs of coming down, sceptics have said that the FMCG sector will have a tough time. But as companies and analysts perceive it, 2011 is also going to be a year of growth.
FMCG companies are expecting an increase of 15% in their net profits. Hindustan Unilever Limited is eyeing a 12% increase and ITC 16%. A steep increase in the price of food items and agricultural products, has led to spiralling input costs, but all FMCG companies have raised their product prices in order to improve their margins, and there will be further increases.
P Ganesh, chief financial officer of Godrej Consumer Products Limited, told Moneylife, "Vegetable oil prices globally have risen over the last few months, as have prices of other agricultural products. Given the high oil prices, we are seeing some upward price corrections. This will take care of the pressure on margins."
In the last few years, the FMCG market in India has gone from strength to strength. Now, India is considered the place to be. Consumption levels have increased. A spokesperson for Hindustan Unilever remarked that 2011 will see further growth in that direction.
Major Indian FMCG brands like Godrej Consumer Products, Marico and Dabur, have undertaken overseas acquisitions last year. While nobody has disclosed plans for 2011, these companies are looking to strengthen their presence internationally.
But some are sceptical about the growth story. What are the chances of sustaining volumes with increased prices in a competitive market, when inflation has reached astounding proportions? Will the price increases not discourage consumers, and in turn limit growth?
Milind Sarwate, chief of finance, human resources and strategy at Marico Industries, agrees there is a possibility that consumers would be put off, but he insists that the everyday products will be bought anyway. He said, "Discretionary items will, logically, suffer more than non-discretionary ones. Daily use products may not suffer as much, as consumers normally do not spend much time on their purchase decisions."
However, analysts disagree. Naveen Trivedi, an analyst at Pinc Research, said, "In the present situation, we should consider the pricing power of a brand. If a brand has market leadership, it can afford to raise prices and still sustain volumes, because they have pricing power. That way, even a small company like Ujala may afford to raise its prices and retain its position, because in its place, it is the top brand."
It is understandable that smaller companies will suffer more due to inflation, despite their agility in dealing with rising prices. Also, situations like these demand consolidation in the sector. There is a chance that smaller companies will become acquisition targets, though Indian owners are loath to sell-out.
Companies and analysts as well as the common man will go through 2011 with apprehension. While consumers struggle to cope with shrinking pockets, companies will have to figure out a strategy to get them back to the stores.
"Since the entire price table is moving up, there may not be any relative play or arbitrage between various segments. Companies will have to think hard as to how they will plan consumer retention along with margin retention", Mr Sarwate of Marico said.