RBI policies aggravating manufacturing sector problems: Barclays

“Conditions for Indian manufacturing have perhaps worsened, given the RBI’s prolonged tight monetary policy and the lack of liquidity in the banking sector,” Barclays Capital Research said in its ‘Emerging Markets Research’

New Delhi: Blaming supply constraints for rising cost of manufactured items, Barclays Capital on Monday said the Reserve Bank of India’s prolonged tight monetary policy has only aggravated the problem for the manufacturing sector, reports PTI.

“Conditions for Indian manufacturing have perhaps worsened, given the RBI’s prolonged tight monetary policy and the lack of liquidity in the banking sector.

In a way, Indian policy makers seem to be fighting structural inflation, mostly with cyclical tools such as hiking interest rates,” Barclays Capital Research said in its ‘Emerging Markets Research’.

It further said: “Supply constraints keep manufacturing prices elevated. Most of the manufacturing sector while enjoying the benefits of steady and rising demand, often faces disproportionate problems in scaling up supply due to persistent infrastructure bottlenecks.”

Manufactured items, which have a share of over 65% in Wholesale Price Index (WPI), have reported inflation of over 6% since February this year and has been one of the major contributors of the current high inflationary pressures.

Core inflation stood at 7.69% in September this year.

The RBI had earlier warned that prices of manufactured items are likely to remain high on account of volatile global commodity prices.

The central bank has hiked its key policy rates 13 times, totalling 350 basis points since March 2010, to curb inflation.

Corporate India has blamed the repeated rate hikes, which have increased the cost of borrowing, for hindering fresh investments and resultant slowdown in industrial growth.

Economic growth in April-June stood at 7.7%, the lowest in six quarters. Growth in industrial production also fell to a mere 4.1% in August.

Barclays said that legal and procedural impediments often present additional burdens as in the case of recent incidences of disputes over land acquisition in various parts of the country, and contribute to a widening in the demand-supply gap in the manufacturing sector.

“As a result, we think manufacturing inflation should be seen as a structural problem, rather than a cyclical issue.

“Indeed, over the past four years, inflation has often been labelled as structural, but on the fiscal front, which could help alleviate capacity constraints, little success has been achieved,” Barclays said.

Pointing to the RBI’s policy of monetary tightening as means of combating inflationary pressure, the report said that the central bank’s measures had in fact contributed to the problem of demand-supply mismatch.

“However, the RBI has typically focused on managing the near-term inflation even when it explicitly flags capacity constraints as a key reason for rising manufacturing inflation,” it said.

According to Barclays, the changing nature of India’s industrial sector means that the cycle of commodity prices generates inflationary pressures more quickly nowadays than in earlier times.

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Govt panel suggests PPP model for buying fertiliser assets abroad

“The country is deficient in all fertiliser minerals. Hence, concentrated efforts should be made by making consortium of public and private companies to acquire assets abroad,” says a report of the Working Group on ‘Mineral Exploration and Development (other than coal and lignite) for 12th Plan’

New Delhi: A government panel has called for a public-private partnership for acquiring fertiliser mineral assets abroad during the 12th Five Year Plan period (2012-17), reports PTI.

A 42-member panel, headed by the secretary of the mines ministry, has also emphasised on the creation of a sovereign wealth fund of Rs1,000 crore for acquisition of overseas mineral assets including fertiliser components.

“The country is deficient in all fertiliser minerals.

Hence, concentrated efforts should be made by making consortium of public and private companies to acquire assets abroad,” says a report of the Working Group on ‘Mineral Exploration and Development (other than coal and lignite) for 12th Plan’.

India, which is dependent on imports for key fertiliser raw materials, should specifically focus on acquiring assets in countries like Uzbekistan and Jordan, it said.

The working group has also stressed on strengthening relationship with mineral-rich countries and provinces with specific agreements, the panel said.

The government should also play a facilitating role by providing diplomatic support to private players in acquiring mineral assets abroad, it added.

“As the major developed and developing countries are trying to acquire overseas mines by way of purchasing assets abroad or diplomatic support, the Indian government needs to play a facilitative role to help by involving diplomatic support,” the panel advised.

It also said the concerned ministries—mines, fertilisers, atomic energy, commerce and external affairs—should focus on this issue on an urgent basis.

India has been planning to set up its own fund in order to acquire strategic overseas assets in mining and energy segments to meet its future needs.

Recently, the Planning Commission also suggested setting up a sovereign wealth fund with an initial corpus of $10 billion, mainly to invest in energy and mining assets abroad.

The sovereign wealth fund is a government-owned corpus where money is pooled in from state resources to invest in overseas assets.

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Govt should provide PPP detail in budget: Plan panel

“There should be supplements to the budgets providing project-wise, ministry-wise and sector-wise information on PPPs projects,” the Planning Commission said in a presentation, which is based on the Rangarajan Committee report on efficient management of public expenditure

New Delhi: With a view to improve transparency in public private partnership (PPP) projects, the Planning Commission wants the finance minister to disclose all the information about such ventures in the budget proposals, reports PTI.

“There should be supplements to the budgets providing project-wise, ministry-wise and sector-wise information on PPPs projects,” the Commission said in a presentation, which is based on the Rangarajan Committee report on efficient management of public expenditure.

The government is trying to promote infrastructure development through PPP projects and has suggested the state should pick projects under this mode in a big way.

PPP is a private business investment where two parties comprising government as well as a private player form a partnership to set up projects for providing public service.

The government is eyeing an investment of around $1 trillion in the 12th Five Year Plan (2012-17), with half of it coming from the private sector in infrastructure projects like railways, telecommunication, road and power.

At present, the government does not provide such consolidated information about the PPP projects being implemented by the various government departments along with the budget.

The commission also suggests that annuity commitments (by private player) under PPP projects may form part of the committed expenditure of the budget of the concerned ministry or department.

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