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Friday, May 02, 2008

India Inflation April 19 2008

India's inflation accelerated at the fastest pace in more than three years in mid april, underlining the importance of the recent central bank decision to make commercial lenders increase reserves twice last month.Wholesale prices rose 7.57 percent in the week ended April 19 from a year earlier, after gaining 7.33 percent in the previous week, the government said in a statement in New Delhi today. Today's rise is the highest since November, 2004, when prices rose 7.68 percent.




Accelerating inflation prompted the Reserve Bank of India to raise its cash reserve ratio to a seven-year high only last week, with the central bank unexpectedly raising the cash reserve ratio to 8.25 percent from 8 percent. This is now the highest level since March 2001. The Indian government is also attempting to use administrative measures, and recently scrapped import duties on steel products - including pig iron, hot-rolled coils, ferrous alloys and zinc - and imposed an export tax on the overseas sales of some other steel products to augment local stocks.

The Reserve Bank of India now expects inflation of as much as 5.5 percent in the coming financial year (to March 31 2009), higher than last years target of 5 percent.

Finance Minister Palaniappan Chidambaram yesterday said he doesn't expect commercial lenders to raise interest rates after the central bank asked lenders to set aside more money. Banks are ``quite happy that only the cash reserve ratio has been hiked and policy rates have been untouched,'' Chidambaram said after meeting the chief executives of state- owned banks in New Delhi.

Central bank Governor Yaga Venugopal Reddy is reluctant to increase interest rates on concern it will further weaken an economy that the central bank expects will grow at the slowest pace since 2005 this year. India's $912 billion economy, Asia's third largest, may expand between 8 percent and 8.5 percent this year, the central bank said, after record average growth of 8.7 percent in the previous five years.



Meanwhile the rupee had its worst week in almost nine months this week as local companies bought more dollars to pay for imports. The rupee weakened to the lowest level in more than a month as the dollar rebounded against the euro and the yen on signs the Federal Reserve is finished with its interest-rate cuts after it said on April 30 that the seven reductions starting September were ``substantial.'' Demand for the U.S. currency also rose as refiners bought it to pay for oil shipments after the price of oil reached an all-time high this week.

The rupee declined 1.3 percent this week to 40.655 per dollar at the 5 p.m. close in Mumbai - that's the biggest fall since the five-day period ended August 17.

The value of Indian imports grew 27 percent to $236 billion in the fiscal year ended March, widening the trade deficit by 45 percent to $80.4 billion, the Commerce Ministry said yesterday. The problem is that the rupee's 3.2 percent decline so far this year may accelerate inflation. This danger alone may prompt the central bank to raise its benchmark interest rate for the first time in more than a year.


1 comment:

Krishnaraj said...

I'm continually amazed by a kind of public blindness to the obvious realities around us. I don't want to go into details, arguments, justifications etc. because they obscure the big picture. I don't want to talk about global warming, unsustainable growth, extinction of species etc. because they seem like distant theoretical stuff to us.

I'm stating a fact as bluntly as possible: our lifestyles are about to take a big hit.

The world economy -- and with it the India economy -- is coming unravelled. Please stop believing in bullish projections; the government and big businesses are just kidding themselves and kidding us that all will be well.

Our current world order, which we broadly refer to as our economy, has been built on too many untested assumptions. What we -- and our economists and governments -- firmly believe as solid bedrock is only shifting sand, and the sand is shifting uncomfortably beneath our feet. The superstructure that has been built up in the past two or three decades is far more than this sand will continue to bear.

We keep telling ourselves and each other that the shifting is only temporary, like a bit of stock market bearishness. But this shifting is not so temporary. Big adjustments are starting to happen which may take 60-70 years to completely settle down. These changes -- the collapse of an unsustainably tall tower -- will not end in our lifetime.

What does this mean? Firstly, it means that the kind of rich urban living that we take for granted is about to become impossible to continue. We cannot change our habits of living and thinking, but we are about to have them changed for us, most drastically and unpleasantly.

We can no longer live by intellectual labour alone. We are about to have a large amount of physical toil thrust upon us. Large numbers of us will die because they are unable to physically, psychologically or socially adapt.

Our children are growing up under the illusion that they shall live in a comfortable world like ours. I'm afraid that is not the case. Their lifestyle may resemble the lives of cotton farmers in Vidharba... and that is if they are fortunate.

Our living conditions will very probably resemble what is available in Afghanistan or Iraq. We shall all have to get used to living and dying with that level of daily discomfort, uncertainty and deprivation. Our cities will become largely uninhabitable due to a sudden drop in the level of infrastructure and of livelihoods. Jobs will vanish overnight, and so will power supply and water supply. Transportation will become patchy. There will be a huge drop in mobile, telephone and internet connectivity as well, and a huge rise in costs.

Savings will vanish overnight as markets and banks collapse. Galloping inflation will make currency almost worthless.

Our psychological and social skills will be the key determinant of of our continued survival. A vast majority of us, whose skills have wasted away due to easy living, will not make the cut.

All this is set to happen within the next two or three years.

I make this deeply uncomfortable statement because I believe it is true. I hope that understanding all this will help at least a few of us orient ourselves, brace ourselves, our kids and our old folks for the hurricane of events that is about to unfold with terrifying speed and inevitability. Knowledge and forewarning is what enables us to adapt and survive.

And yes: admittedly, I am stating this because I am deeply anxious. Sharing my thoughts with friends helps me relieve my anxiety a bit.

I really want us all to come out of our comfortable mental burrows and face our future with open eyes and minds. Our response doesn't have to be catatonic; we don't have to freeze up like rabbits caught in the headlights, doing nothing but waiting for the impact. It doesn't have to be blind panic... but it doesn't have to be pure denial either!

There is a very tiny chance that we can all strategize the best way to face the impending crisis, provided we recognize it early enough to take action. It seems wildly optimistic to think that substantial numbers of citizens can get together, discuss and act intelligently, rather than getting caught up in ego-battles. It seems even more optimistic that they can convince the government at various levels to be truly proactive and do something truly different.

But I prefer to believe that such things can happen in the months to come. Come, let us put our heads together and make them happen. Contact me at earthspirits3@gmail.com or phone me on 9821588114.

Warm Regards
Krishnaraj Rao
Mumbai
http://friendlyghost.rediffiland.com
http://globalwarming.rediffiland.com