Inflation trebles to 4.78%; RBI may squeeze money supply

The monthly data, released by the government for the second time, shows that potato prices have surged by a whopping 141% over the past eight months, followed by sugar (37%), pulses (32%) and onion prices have zoomed 20%

India's inflation more than trebled to 4.78% during November on account of rising prices of food items like potato, sugar and pulses, and may prompt the central bank to squeeze money supply to tame price rise, reports PTI.

According to the monthly inflation data released on Monday, the wholesale price-based inflation jumped to nearly 5% from 1.34% in October.

Attributing rising prices to supply-side constraints, Suresh Tendulkar, former chairman of the Prime Minister's Economic Advisory Council (PMEAC), said the Reserve Bank of India (RBI) could take steps to withdraw liquidity to tame rising prices. The apex bank is slated to announce review of its annual credit policy next month.

Food inflation, according to the weekly data announced earlier, had shot up by 19.04% during November, recording the sharpest increase in the decade.

The monthly data, which was released by the government for the second time, shows that potato prices have surged by a whopping 141% during the past eight months, followed by sugar (37%), pulses (32%) and onion prices have zoomed 20%. On the other hand, minerals, edible oils and leather products have become cheaper since March 2009.

The RBI in its monetary policy review in October had revised the inflation forecast to 6.5% by March-end from 5% earlier.

International raw material prices are rising so domestic prices are also seeing a movement upward, Mr Tendulkar said, adding that the government needs to manage supply shortages.

"The RBI may withdraw the liquidity in terms of statutory liquidity ratio (SLR) movement but I don't see any rate changes being done, not till the next quarterly review in January," he said.

The central bank has been increasing money supply for industry to tide over the global financial crisis.

The rising prices are an issue of concern for the government as a worried Congress president Sonia Gandhi had earlier said during the week that “price rise of essential commodities continues to be a matter of highest concern to us.”

Among manufactured products, textiles rose by 1.4%, paper and paper products by 0.1%, while chemical and chemical product prices increased by 0.1%.

Commenting on the price rise, Yes Bank's chief economist Suhubhda Rao said, "A sharper rise in manufacturing clearly indicates that the pricing power is gradually returning as the broad group within manufacturing products have registered month-on-month increase in the index numbers."

Ms Rao added that firming inflation will be on the RBI’s radar where the CRR could be hiked in December by 25-50 basis points.

 

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Abu Dhabi gives Dubai $10 billion to cover debt

Dubai has received $10 billion in financing from fellow emirate Abu Dhabi, which will be used to pay part of the debt held by Dubai World and its property unit Nakheel

The government of Dubai, acting through the Supreme Fiscal Committee (SFC), on Monday said that its neighbour Abu Dhabi had agreed to give $10 billion in emergency funds that will go toward paying debts owed by its Dubai World conglomerate.

Out of the total $10 billion, it would use $4.10 billion to repay Nakheel's Islamic bond maturing on Monday, while the rest will be used to finance Dubai World's obligations through the end of April 2010, the government of Dubai said in a release.

Announcing this, Sheikh Ahmad Bin Saeed Al Maktoum, chairman of the Dubai Supreme Fiscal Commitee, said that the UAE central bank, based in Abu Dhabi, is also prepared to support local banks.

He said that the remaining funds would be used for interest payments and working capital of Dubai World through 30 April 2010 on condition that the company successfully negotiates a ‘standstill’ agreement with creditors as earlier announced.

On 25th November, the Dubai government said that the State-run holding company is seeking a 'standstill' agreement on its debt, including the Nakheel unit.

Mr Al Maktoum said that the government of Dubai would announce a comprehensive reorganisation law, a framework that is based on internationally accepted standards for transparency and creditor protection.
 

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Bajaj Auto: Will history repeat itself time and again?

Bajaj Auto, once the undisputed king of two-wheelers, and the maker of a range of famous scooters—that used to carry an entire family—will exit the scooter segment, and will instead concentrate on motorcycle manufacturing. Is this move related to the increasing pressure from competition, which seems to offer much better products than Bajaj Auto?

‘Hamara Bajaj’ is a slogan that clearly evokes a lot of nostalgia—even though the long waiting lists for Bajaj scooters also throws us back to the days of shortages, waiting lists and black market premiums for what was, for decades, one of the most prized possessions of a
middle-class Indian family.

 

Naturally, Bajaj Auto’s decision to exit the scooter business has triggered a wave of nostalgia. But things change. The economy has moved on, shortages have disappeared and there is a new generation in charge of decision-making at Bajaj, which is keener on the motorcycle segment rather than scooters.

 

"We will exit the scooter market because we don't see much sense in it. If we are to be a motorcycle specialist, we cannot make scooters,” Bajaj Auto’s managing director Rajiv Bajaj told reporters in New Delhi at the launch of its 135-cc ‘Pulsar’ that is being targeted at the mass-market audience. The company had not focussed on technology for this segment either, unlike Honda, which continues to do well in this very segment.

 

According to the Society of Indian Automobile Manufacturers (SIAM), Bajaj Auto sold only 154 units of its ‘Kristal’ scooter in November 2009 and exported 104 units. Its total domestic scooter sales during the April-November period were 3,356 units and it sold 728 units overseas.

 

In the same period, Honda Motorcycle & Scooter India Pvt Ltd (HMSI), the unit of Japanese Honda Motor Co Ltd, sold 68,269 scooters in November. HMSI recovered its 54% market share which had eroded due to problems at the suppliers’ end and a labour strike that resulted in an order backlog of about 1.4 lakh units. Even today, there is a waiting period of three-four months for delivery of Honda's scooter brands like ‘Activa’, ‘Aviator’ and ‘Dio’.

 

While Honda is the undisputed market leader in scooters, even recent entrants like Mahindra Two Wheelers Ltd (MTWL), are selling scooters like hot cakes. In November, MTWL sold 7,020 scooters. Last year, HMSI sold about 11 lakh units and is aiming to increase its production to 15 lakh units per annum with the help of a third assembly line.

 

So, when Mr Bajaj says that he doesn’t see much sense in the scooter business, the data from SIAM and the auto industry of scooter sales says that the segment itself is booming for other manufacturers. 

 

One of the problems is that while all scooter makers have launched products based on fresh R&D and improved features (such as auto gears), performance and mileage, Bajaj did not bother to make much of an effort on this front. The company continued with its iconic (but now defunct) geared scooters. Although Bajaj does sell the 100-cc gearless 'Kristal', its other features are hardly on par with what the competition has to offer. 

 

In effect, the scooter segment of Bajaj seems to have died an unnatural and untimely death mainly due to lack of support from the family. But looking at the company's—especially Rajiv Bajaj's stance in the past—I wonder if it will start making and selling scooters again.

 

After all, not so long ago, Bajaj did an about-turn on its decision to exit from the 100-cc motorcycle segment after failing to catch up with market leader Hero Honda, after the success of Bajaj's higher-end models like the ‘Pulsar’. In July 2009, Bajaj re-entered the 100cc motorcycle segment with a better product in its 'Discover'.

 

Hero Honda rules the market for the sub-125cc category with a share of 82.3%, while Bajaj and TVS Motor Co Ltd stand a distant second and third place with a market share of merely 8.4% and 8.1%, respectively.

 

India's market is divided roughly into two categories, urban and rural, depending on the needs and resources of consumers in these areas. For example, pricing and fuel efficiency matters most for rural consumers whereas the urban consumer would prefer more power and style in a motorcycle.

 

In an effort to capture the younger, tech-savvy urban consumer market, Bajaj ignored the rural market and had not launched any new variant in the 100-cc segment since the past two years. These 100-cc motorcycles offer a better mileage at a lower cost compared with motorcycles in the above 100-cc categories. These motorcycles are preferred in rural areas.

 

The question is, did Bajaj pay a huge price for ignoring the rural market? Looking at the sales and market share figures, it seems to be the case. So the re-entry of Bajaj into the 100-cc category was an event bound to happen. The result? With the launch of the 100-cc motorcycle, Bajaj Auto was able to significantly improve its market share to 27% from 21% in August. 

 

The same case plays out in the three-wheeler segment. This segment has been the mainstay for Bajaj over the years. But it was also treated in the same way as the scooter segment and the company has been paying a huge price for it. Sensing an opportunity, other smart automakers, like Tata Motors Ltd, Piaggio Vehicles Pvt Ltd, TVS Motors and Mahindra and Mahindra Ltd (M&M) entered the light commercial vehicle (LCV) market.

 

In a game-changing move, instead of competing with Bajaj in the three-wheeler segment, Tata Motors, the country’s largest vehicle maker, came out with a complete new category—the mini-truck segment—which became an instant hit.

 

The launch of ‘Ace’ saw an overall dip in three-wheeler commercial vehicle sales with Bajaj taking the maximum hit. It was also multiplied by the fact that Bajaj offers just one variant, ‘GC Max’ in this segment, while others like M&M have two variants, ‘Champion’ and ‘Alfa’. Following Tata’s success with ‘Ace’, Piaggio also entered the mini-truck segment with its ‘Ape’ truck.

 

In its bid to counter the growing influence of the mini-truck segment, Bajaj said in January 2008 that it would enter the LCV segment. The company said that it would manufacture its LCVs at its Chakan-based facility near Pune. However, no concrete steps have been taken by Bajaj, so far, and there is no word from the company on the proposal.

 

In August, Bajaj said that it would launch four new variants of its three-wheelers in the passenger and commercial vehicle segment, over the next six months.

 

In the three-wheeler passenger carrier (popularly known as the auto-rickshaw) segment, during November, Bajaj and Piaggio were able to register an increase of 61.3% and 68% in sales, respectively. M&M and TVS Motors clocked a growth of 133% and 211%, respectively. The rising sales of competitors are sounding the alarm bells for Bajaj, as vehicles from both M&M and TVS Motors offer better features and performance than Bajaj's auto-rickshaws.

 

It remains to be seen what kind of product mix will Bajaj come up with, to counter and sustain competition in the motorcycle, three-wheeler and last but not the least, the scooter segment.
 

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COMMENTS

Ralph Rau

4 years ago

Personally it looks like Bajaj has lost its "mojo".

Does Rajiv Bajaj have the ability to attract the right talent around him and inspire them to deliver a whole new product concept to shine in this "commodity" business.

If not he needs to step aside and let somebody else do the job.

The fact that Munjals have diluted their stake in Hero Moto also seems to suggest there is not enough opportunity left in the 2 wheeler business?

Chairman Rahul Bajaj should wield the stick and not tolerate poor performance for too long.

Shadi Katyal

9 years ago

Bajaj made money when India had restrictions on imports. Bajaj built the fortune on deposits in advance and yet with all these years of experience Bajaj is unable to provide any guilty or innovations.
Will history repaet, NO WAY.
Show us one product of Bajaj which has any qulaity?

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