Inflation continues; forget rate cuts

 Headline inflation is expected to rise above 8% by the year-end. So, all those hoping for a rate cut at the RBI’s 30th October meeting would be disappointed. A 25 bps cut in the cash reserve ratio (CRR) remains possible, according to Nomura

Headline inflation is expected to inch above 8% in the coming months. The diesel price hike has not yet been fully reflected in the WPI (Wholesale Price Index) reading, and that will add another 20 basis points (bps) to the headline inflation in October 2012. According to Nomura Economics Research, higher transportation costs will push food inflation, particularly fruit and vegetable prices, in the coming months. The recent rupee appreciation should ease cost pressures, but with growth bottoming, the risk of recent input cost pressures being passed through to consumer prices cannot be ruled out.


According to Nomura, the implications for the monetary policy are that today’s inflation print does not make a convincing case for the Reserve Bank of India (RBI) to cut the repo rate at its 30th October meeting. A 25bps cut in the cash reserve ratio (CRR) remains possible.


WPI inflation has bounced back to 7.81% in September from 7.55% in August, led by higher fuel inflation. Although food inflation eased, core inflation remained steady at 5.6% y-o-y (year-on-year) in September 2012 due to an across-the-board increase in prices. The rise was largely due to the hike in diesel prices in mid-September, which contributed about 44bps to headline inflation. Food inflation eased to 8.5% y-o-y last month from 9.1% in August as lower fruits and vegetable prices more than offset increased prices for manufactured (processed) food items. Core inflation remained unchanged at 5.6% y-o-y in September. However, prices of all the sub components increased, with basic metals, chemicals and textile categories rising most. Elsewhere, July WPI inflation was also revised up to 7.52% from 6.87% following an upward revision to manufactured food and electricity prices.


One might attribute the uptick in inflation to the diesel price hike. However, there has been an across-the-board increase in prices of manufactured items, and we believe price pressures are unlikely to wane anytime soon, as suggested by the quarter over quarter seasonally adjusted annualized rate (a measure of sequential momentum) of core inflation. With the risks of inflation clearly tilted to the upside, the trade deficit worsening and CPI (consumer price index) inflation near double digits, it is not appropriate for the RBI to let its guard down on inflation. It is expected that the central bank will cut the repo rate only in the first half of 2013, premised on a moderation in inflation starting in December 2012 (data released in January).


Finally, there is the possibility of the RBI cutting the CRR by 25bps as a positive response to the government initiating the reform process.


PharmaCity units have been disposing of their effluents leading to severe water pollution, says EAS Sarma

The Andhra Pradesh Pollution Control Board apparently has not cared to take the water samples on time and subject them to an analysis in PharmaCity, Vishakapatnam, thereby allowing the polluting units to get off the hook, says EAS Sarma, convener, Forum for Better Visakha

There have been serious apprehensions about the manner in which the PharmaCity units have been disposing of their effluents, says EAS Sarma, convener, Forum for Better Visakha (FBV) and former secretary to the Government of India. Since December 2009, it has found Uracheruvu (a water body) in Tanam village adjacent to these units heavily polluted, presumably as a result of the effluents of PharmaCity draining into it. The Andhra Pradesh Pollution Control Board (APPCB) apparently has not cared to take the water samples on time and subject them to an analysis, thereby allowing the polluting units to get off the hook.


FBV refers to a copy of the report submitted by the expert committee headed by Prof JM Dave submitted to APPCB in October 2009 on PharmaCity’s waste treatment facility. The report indicated the leaching of hazardous chemicals into the ground water and the unsatisfactory functioning of the treatment plant. The following questions are there for APPCB to answer:


(a) What is the follow up action taken by the APPCB on each of the findings of the Dave Committee?

(b) Why has the APPCB not displayed Dave Committee report and the action taken on it at its website as required under Section 4 of the Right to Information (RTI) Act? Are they not matters of public importance?

(c) Has the APPCB penalized PharmaCity for damaging the quality of the water? Has the APPCB asked for expert opinion on assessing the damage and recovering the costs from the Ramky Group?

(d) Ramky’s track record elsewhere has not been satisfactory. Why is the APPCB not taking stringent action against PharmaCity’s activities at Vizag, based on the Dave Committee’s findings?


In particular, FBV requests the APPCB to periodically monitor the quality of water in Uracheruvu, as it is likely that a part of the effluents from PharmaCity will enter the water in that tank. Downstream, this water mixes with the saltpans and the sea water.


The FPV is not alone in this battle against pollution. It is distressed at the reports appearing in the press of hazardous chemicals being dumped by some anti-social elements into Yeleru Canal near Lankelapalem village, as evidenced by the death of fish on a large scale in the water flowing in the Canal. FPV appeals to APPCB and the district collector (Visakhapatnam district) to undertake an urgent investigation to identify the culprits and prosecute them for this grievous offence that would have led to loss of life and widespread damage to the health of the people living downstream. The investigation should determine the nature of the pollutants and trace them to such industrial units that are known to have delayed setting up adequate effluent treatment facilities.


Here too, there has been inappropriate use of government funds. According to EAS Sarma, “I am surprised that the government (Industries Department) should issue orders on 2 December 2009 bestowing a grant of around Rs6 crore on the Ramky Group, in addition to allowing it to borrow another Rs32 crore from public financial institutions to set up a centralized effluent treatment plant for all chemical units in north Andhra. This is when the units in PharmaCity themselves have repeatedly indulged in wanton acts of pollution. As a regulatory authority, the APPCB should come clean on this and ask the government to keep the GO (Government Order)  in abeyance, failing which we will be constrained to conclude that APPCB is also a party to all this.”


The Ramky Group is a specialist multi-disciplinary organization with a turnover of over Rs4,500 crore, focused in the areas of civil, environmental and waste management infrastructure with specific emphasis on public private partnership (PPP) projects. The Group has over 6,000 employees. While the Group is yet to clear its name with environmentalists and NGOs, the Group has been flourishing in Andhra Pradesh and on the stock exchange, as well. It had the powers to sanction environmental clearances to industrial units. It was responsible for waste disposal. On the stock exchange its listed company was trading at around Rs450 just two years ago, and is now trading at an unexciting Rs111.


There is a clear case where the government should be strict with its funds and the public in PharmaCity, and the rest of Andhra Pradesh, must be allowed to use safer water.


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