Mumbai: The Reserve Bank of India (RBI) today hinted at another round of monetary policy tightening at its upcoming review meet on 2nd November, with deputy governor Subir Gokarn asserting that it is a challenge to keep inflation in check, reports PTI.
"Persistent price increases in commodities for which there are less effective substitutes, with other things remaining equal, will raise the potential rate of inflation over a period of time. India's challenge is to keep inflation under check," Mr Gokarn said while delivering a speech at the India Gandhi Institute of Development Research here today.
Inflation inched up to 8.62% in September from 8.5% a month ago - well above the RBI's comfort zone - on higher food prices.
Earlier during the day, finance minister Pranab Mukherjee, at the Economic Editors' Conference in Delhi, said, "I will try to bring it (inflation) down through whatever mechanism we have... It would be ideal if we have 4%-5%, but may be difficult. But I do feel that the annualised inflation rate would be around 6%."
Food prices were expected to cool following a normal monsoon and improved supplies, but the continued upward spiral in prices has belied that optimism.
The RBI is widely expected to continue with policy-tightening measures at its review meeting on 2nd November, with a 0.25% hike in key short-term rates on the cards.
The current inflation scenario is a cause for concern, as the inflation rate is well above the upper band of the comfort zone, he said.
India's annual food inflation slowed to 15.53% in the first week of October from 16.37% in the previous week.
"As regards food, the pressures in the Indian economy are predominantly domestic. Our Green Revolution in the 1960s raised the production of cereals dramatically, which increased availability and stabilised prices," Mr Gokarn said.
"However, what we are seeing today is the impact of increasing affluence on the demand for a variety of food items that go far beyond cereals. As people become more affluent, their diets diversify," he added.
Blaming high food inflation on the changing food habits, he said there has been an enormous increase in the demand for various food items beyond cereals. The demand for high protein foods like pulses, milk, meat, fish and eggs has surged and so has the appetite for sugar, fruits and vegetables.
"A rise in income has increased the share of proteins in people's diet. Increasing demand for protein appears to be an inevitable consequence of rising affluence. Rising affluence has also led to an increase in demand for proteins and nutrition," Mr Gokarn said, adding that one option to bring down prices would be to import pulses.
During the past two quarters, property prices were being jacked up by various builders across the metropolis. However, customers are not biting, and realty prices may be in for a correction in the months ahead
Finally, prospective homebuyers can heave a sigh of relief. In the second quarter, property prices in Mumbai have stagnated - and in some cases, they have even come down, according to a report from property consultancy firm Knight Frank.
This is in sharp contrast to the previous two quarters where property prices in Mumbai had seen steep hikes as developers were trying to tap into what they perceived to be dormant pent-up demand during the worldwide recession.
According to the data provided by the consultancy firm, property price appreciation was seen in only a few micro-markets in Mumbai. The maximum appreciation was in Goregaon (a western suburb), where prices increased by 6%. Both Goregaon (East) and (West) saw an increase of Rs500 per square feet in the second quarter compared to the first quarter. Locations in prime areas in south Mumbai - such as Walkeshwar and Malabar Hills - saw a slight increase of only 4%-5% in prices (of about Rs2,500 square feet) during the same period.
Besides, there wasn't any price appreciation seen in the central suburbs and the satellite city of Navi Mumbai, considered to be some of the fastest-growing zones in and around Mumbai.
In Malad, considered to be a prime western suburb, the prices of property have declined by 9% (or Rs750/sq ft to Rs7,500/sq ft).
The report attributes the stagnation in Mumbai real-estate prices to flagging demand from consumers due to the abnormal rates that were being charged by builders. "Consumers have made it clear that they will not pay over the odds for apartments and consequently developers have been coerced to stop rapidly escalating property prices in Mumbai," said the report.
A real estate expert, preferring anonymity, told Moneylife that real-estate prices being quoted do not actually reflect the true picture. He said, "There is demand, but the price the builder is quoting is not matching with the purchasing capacity of buyers. Besides, builders are not selling property at the prices which they are quoting. They are selling at discounted prices behind closed doors. Also, the funds the builders have been able to generate from multiple sources have enabled them to hold prices high, which is (again not) sustainable."
What's more, builders are coming up with lucrative schemes to push sales in the residential segment. Among their tactics is making a '10:90' offer (see: http://www.moneylife.in/article/4/10186.html).
Earlier, the real-estate market experienced an alarming rise of about 30% in certain Mumbai micro-markets during the first quarter of this year, resulting in a decline in sales by 50%-60% (see: http://www.moneylife.in/article/4/8844.html).
Besides, the Knight Frank report says, "Similar to 1Q 2010, 2Q 2010 saw a fairly low number of inquiries and transactions in the Mumbai micro-markets. While there were some large transactions, the overall volume of transactions decreased further during this quarter. However, there were a few noteworthy projects that were launched in 2Q 2010."
The real-estate market focussed more on higher valuations and raising funds through the capital market than on end-user sales, according to Pankaj Kapoor, founder and managing director, Liases Foras, a real-estate rating and research company.
However, according to the report from Knight Frank, not many real-estate companies have gone ahead with their plans of venturing into the capital markets because the performance of the listed companies discouraged them from doing so. The returns generated by the stocks after listing have been below investor expectations, the report said.
In terms of rental values, there has been no price appreciation noted in the second quarter compared to the first quarter of 2010.
It remains to be seen if prices will come down even more from the current astronomical levels so that prospective customers will finally be able to afford a place in the metropolis - and beyond.
Coimbatore: The Tirupur Exporters' Association (TEA) today requested prime minister Manmohan Singh to immediately intervene and postpone cotton exports to 15th January and ban cotton yarn exports, to ensure its availability in the domestic market, reports PTI.
In a letter to Mr Singh, TEA president, A Sakthivel said the knitwear export sector was facing an alarming situation, which would even lead to the closure of export units after Diwali, as no one is able to cope with the ever increasing price pressure of cotton yarn, the main raw material.
The cotton price in the domestic market was skyrocketing on a daily basis because of the government permission granted for export of 55 lakh cotton bales from November. It was a fact that the real beneficiaries were traders and MNCs and not the cotton farmer nor the user industry, he claimed.
Requesting the prime minister to allow cotton export only after 15th January, that too in a calibrated manner, TEA also urged him to bring cotton under the Essential Commodities Act.
Mr Sakthivel also said cotton procurement should be done on Actual User Condition basis to avoid speculation and hoarding.
Copies of the letter were sent to union finance minister Pranab Mukherjee, textile minister Dayanidhi Maran, commerce and industry minister Anand Sharma and his deputy Jyotiraditya Scindia, Tamil Nadu chief minister M Karunanidhi and deputy chief minister M K Stalin.