“On behalf of Government of India, I welcome you to the Economic Editors’ Conference. Economic journalists, especially those who are based in places other than the capital, look forward to this annual interaction. So do we, because economic journalists play a vital role in market based economic systems. They build public opinion, communicate information, and transmit economic realities, which in turn influences political decision making.
The Global Setting
These are challenging times for the global economy. Against the backdrop of a slow recovery from the global economic crisis of 2008, economic problems in Europe have emerged as another threat to the global financial system. This uncertainty is affecting market sentiments everywhere and dampening the prospects of an upturn in the global economy. The world economy achieved a GDP growth of 5.3 per cent in 2010. The rate of growth declined to 3.9 per cent in 2011 and is expected to decline further to 3.5 per cent in 2012. The rate of growth of Advanced Economies halved from 3.2 per cent in 2010 to 1.6 per cent in 2011 and is expected to decline further to 1.4 per cent in 2012.
Our Economic Challenges
As can be expected, the Indian Economy has not been immune to these developments. It registered a growth of 6.5 per cent during 2011-12 in terms of gross domestic product at factor cost at constant 2004-05 prices and in Q1 of 2012-13 the provisional estimate of growth is 5.5 per cent. However, we would do well to remember that, out of 8 years, it is only in two years, 2008-09 and 2011-12 that the GDP grew at below 7 per cent. It is indeed a matter of concern that the growth rate dipped in two years but there is no cause for gloom or despondency. I may point out that, even at a low growth rate of 6.5 per cent, India was among a handful of countries that recorded significant growth in that year.
The slowdown in growth is attributable mainly to the global economic situation, high commodity prices, inflation and a decline in investment. Government responded to the declining trend in the growth rate by increasing public expenditure. However, in the absence of matching revenues, a rise in expenditure led to a rise in the fiscal deficit. Inflation also rose. The burden of containing inflation fell, largely, on the Central Bank. The Reserve Bank of India was obliged to follow a tight monetary policy. Overall inflation declined from 9.8 per cent in August, 2011 to about 7.55 per cent in August, 2012, but still remains unacceptably high. A tight money policy has dampened investment as well as growth, particularly in the industrial sector. I think all of us would do well to note the limitations of monetary policy action. It is Government’s firm belief that fiscal policy and monetary policy should work in tandem so that the common objectives of containing inflation and stimulating growth are achieved.
Let me say a few words on inflation. It has been an issue of persistent concern over the past few years. We have seen some moderation in recent months. Inflation measured in terms of WPI has been in the range of 7-7.6 per cent in the recent months as a result of the measures taken by the Government and the Reserve Bank of India. WPI inflation in August 2012 stood at 7.55 per cent. However, with food inflation continuing to be high, we must take more steps in order to contain inflation.
Restoring Growth: The Current Reforms
Growth comes from higher investment. We achieved a high investment rate of 38 per cent in 2007-08 and in that year the GDP grew at 9.3 per cent. Hence, the foremost task before us is to promote savings, channelize the savings into investments, and achieve a rate of investment of 37-38 per cent of GDP. At that level, given India’s incremental capital-output ratio, I am certain that growth will recover to 8 per cent or more and perhaps touch 9 per cent. While it would be premature and ambitious to talk of 9 per cent growth, we should keep that rate of growth as our objective and progress towards achieving that objective. It is in this context that the 12th Plan has projected an average growth rate of 8.2 per cent with growth in the terminal year projected at 9 percent.
Long-standing structural reforms required to achieve high investment and high growth rates have been held back because of many reasons. Among them are the concern to protect the flagship programmes that have been designed to benefit the poor; the need to forge a consensus on reforms; the practical necessity to garner support across the political spectrum to pass legislation; and the assertion of States’ rights that sometimes turns into opposition to structural reforms. Nevertheless, we are now addressing the difficult areas of reforms.
I consider that it is my duty to place before the people the truth. India’s economy is challenged. The state of the economy is reflected by universally accepted indicators such as the fiscal deficit, the revenue deficit and the current account deficit. Let me tell you the plain truth. Without reforms, we risk a sharp and continuing slowdown of the economy which we cannot afford given the imperative need to generate jobs and incomes for a large population, most of whom are young. For example, take FDI in retail. What is the controversy about? The first comprehensive Cabinet paper on FDI in retail was prepared by the NDA Government in 2002. It was considered by a Group of Ministers. That paper acknowledged that FDI in retail was essential to improve the supply chain in agriculture which alone will bring benefits to both producers and consumers. That paper also endorsed the argument that FDI in retail will generate millions of jobs. The idea was never rejected. So, why should there be a controversy when the Government announced its intention to lay down guidelines in order to enable FDI in retail? Government has also made it clear that the ultimate decision whether FDI in retail will be allowed in any State will rest with the State Government concerned. No State can say that other States should also allow FDI in retail; similarly no State can say that other States should not allow FDI in retail. The controversy over FDI in retail is, in my view, unnecessary and unjustified.
There should also be no controversy over reforms in the coal, mining, power, petroleum & natural gas, and infrastructure sectors including roads, railway and shipping. It is these sectors that are the drivers of growth. It is these sectors that will create millions of jobs. It is these sectors that will produce the goods and services that will benefit the people of India. Every Government is entitled to lay down policies. Opposition to policies is legitimate, obstructionism is not. The Government of the day must be allowed to lay down policies, pass legislation wherever necessary, and get on with the job of implementing those policies. Whether the policies are right or wrong and whether the policies have brought benefit to the people are matters on which the people alone can pass a judgment. Under our system there is a judgment day for every Government at the end of five years.
Recent measures
Many steps have been taken in the last few weeks to get rid of the sense of stagnation and to get on with the task of restoring high growth. I have spoken on a few occasion on the measures taken by the Government and hence I shall not repeat the arguments today. However, if you have any questions or doubts on the steps taken by the Government in recent weeks, I shall be happy to answer them.
Let me list a few issues and explain them briefly so that our interaction today will be meaningful.
Firstly, the imperative need of fiscal consolidation. No one will have confidence in the Indian economy if there is uncertainty about the fiscal stability of the country. The recommendations of the Kelkar Committee must be understood in that context. The Kelkar Committee, I believe, has presented the worst-case scenario. It is our duty to avoid the worst-case and do everything possible to contain the deficits. After carefully examining the feedback on the Kelkar Committee’s report, it is our intention to announce a credible and feasible path of fiscal correction beginning this year and ending with the 5th year of the 12th Plan.
Secondly, the need to contain inflation. A depreciating rupee will worsen inflation. We have no option but to import a number of goods and, in some cases, services. These include crude oil and petroleum products, fertilizers, coal, organic chemicals, transport equipment, machinery, iron & steel, edible oils and project goods. In 2011-12, the value of the top 20 essential and unavoidable imports was USD 438 billion. The value of the rupee is an important factor that affects the value of imports. A depreciating rupee will also impact trade and investments. Hence, the need to stabilise the exchange rate. I believe that we have met with moderate success. The rupee had touched a low of Rs.57.22 to one USD on June 27, 2012. On July 31, 2012, the exchange rate was Rs.55.80. A short while ago the exchange rate was Rs.52.13.
Thirdly, given our deficits and the depreciation of the rupee, the crucial role of foreign investment is self-evident. Hence the measures to promote capital inflows. In the hierarchy of inflows, remittances by Indians overseas and foreign direct investment (FDI) are preferable to debt creating inflows. Just as we encourage Indian investors to invest abroad, acquire businesses and assets in other countries, and explore new opportunities and markets, we must not fear foreign investments in India. We have the sovereign right to decide where and how foreign investments would be allowed into India. Each decision to allow foreign investment should therefore be tested not on the basis of some undefined ideology or theory, but on a clear-headed assessment of the advantages that will accrue to India. I have no doubt in my mind that recent decisions to allow FDI in retail, aviation and FM radio broadcasting are decisions that will benefit the economy and the country.
Fourthly, the decision, in principle, to transfer subsidies directly to the beneficiaries in cash is a bold decision that has manifold advantages. For example, if wages under MGNREGA and scholarships to students are transferred to the bank accounts of the beneficiaries using the Aadhar, there will be no case of duplication or falsification. Nor will there be any leakage to, or rent-seeking by, intermediaries. It is our intention to take measured steps in this direction so that subsidies are transferred to the beneficiaries directly, quickly and efficiently. I also visualise huge savings in the subsidies bill.
I could explain the Government’s point of view on some other issues and some other decisions that were taken recently, but I shall leave those for the interactive session.
Let me conclude by asking for your understanding and support. I had underlined your vital role in communicating to the people. I believe that the India growth story is sound and the reform momentum will remain strong and unabated. We should shed self-doubt. We should banish irrational fears. We should embrace the future with confidence. We should believe that we have the capacity to overcome any crisis, as we did in 1991, 1997, and 2008. We have a good story to tell the people of India and the rest of the world and I ask your support in communicating that story.”
Showing posts with label Economy. Show all posts
Showing posts with label Economy. Show all posts
October 8, 2012
October 7, 2012
Pulses and edible oils production may fall this year
Though rice, wheat and sugar production is expected to be at comfortable levels, production of pulses and edible oils may fall short of requirement this year, said K.V. Thomas, Union Minister of State for Consumer Affairs, Food and Public Distribution.
Talking to a group of journalists after inaugurating the Centenary Building of National Test House (Southern Region) yesterday, he said according to the assessment of the Meteorology Department and the Ministry of Agriculture, this year production of rice and wheat will be as good as last year.
Last year, production of paddy was to the tune of about 103 million tonnes and wheat was to the tune of 94 mt. More or less, the same quantity of rice and wheat is expected this year as well.
He said his department has discussed with various State Government officials for the procurement of rice and wheat. All arrangements have been made, including jute bags.
His Ministry has called for a meeting of the Food and Public Distribution Ministry officials of all states on October 29 and 30 in Delhi. All other procurement details will be worked out that time.
On storage capacities, he said five years ago there was a capacity to store 55 mt of foodgrains. Now, it has been expanded to 75 mt. By the end of this year, another 45 lakh tonne capacity will be added.
About 151 lakh tonnes of new capacity will be added by the end of 2013. Besides, two million tonnes of silos will also be constructed. “Hence, I don’t see any problem as far as the storage issue is concerned.”
Regarding sugar, he said last year the production was projected at 240 lakh tonnes. However, finally it ended up with 262 lakh tonnes, while the domestic need was only 220 lakh tonnes.
This year, the projection is at 230 lakh tonnes, which is quite sufficient. “We think, even this year, sugar production will surpass the projection and go up to 240-245 lakh tonnes,” he said.
But, he said his Ministry is “slightly worried” about the pulses and edible oils situation. Chances are that the production of pulses and edible oil come down this year. Even internationally, availability is slightly low.
With this in mind, he said, the Government has decided to continue with the supply of pulses and edible oils at subsidised price. This year, the subsidy on pulses will be Rs 20 a kg and on edible oils Rs 15 a litre. States are also allowed to import pulses and edible oil for distribution and it will be subsidised by the Central Government, he said.
Besides, the Central Government has decided to computerise the Public Distribution System end-to-end — from the Food Corporation of India godowns to state-run ration shops, every movement will be computerised. It is a 50:50 project, funded by the Central and respective State Governments.
Earlier there were 20 crore ration cards in the country. After the computerisation process began in some states, two crore cards were found to be bogus and eliminated from the system, he said. “PDS system has to be modernised. All the loopholes are to be plugged to strengthen the system, and make it more efficient,” he said.
Talking about the Food Security Bill, he said the Bill is being considered by the Parliament Standing Committee, and is likely to be passed. And, the Standing Committee is expected to submit its opinion in a month. “The Bill may be passed in the coming Winter Session,” he said.
Answering a question on wheat exports to Iran, he said the exports are going on under Open General Licence scheme. The central pool has 80.5 mt of wheat, while what is required for public distribution is only 55 mt. So, exports will continue till the need to stop it arises.
On food subsidy bill and whether the government plans any cut, he said the government is bound to give food items on subsidised rates. At present, he said, food subsidy alone accounts for Rs 88,000 crore, and it will continue. “There is nothing to be worried,” he said.
Talking to a group of journalists after inaugurating the Centenary Building of National Test House (Southern Region) yesterday, he said according to the assessment of the Meteorology Department and the Ministry of Agriculture, this year production of rice and wheat will be as good as last year.
Last year, production of paddy was to the tune of about 103 million tonnes and wheat was to the tune of 94 mt. More or less, the same quantity of rice and wheat is expected this year as well.
He said his department has discussed with various State Government officials for the procurement of rice and wheat. All arrangements have been made, including jute bags.
His Ministry has called for a meeting of the Food and Public Distribution Ministry officials of all states on October 29 and 30 in Delhi. All other procurement details will be worked out that time.
On storage capacities, he said five years ago there was a capacity to store 55 mt of foodgrains. Now, it has been expanded to 75 mt. By the end of this year, another 45 lakh tonne capacity will be added.
About 151 lakh tonnes of new capacity will be added by the end of 2013. Besides, two million tonnes of silos will also be constructed. “Hence, I don’t see any problem as far as the storage issue is concerned.”
Regarding sugar, he said last year the production was projected at 240 lakh tonnes. However, finally it ended up with 262 lakh tonnes, while the domestic need was only 220 lakh tonnes.
This year, the projection is at 230 lakh tonnes, which is quite sufficient. “We think, even this year, sugar production will surpass the projection and go up to 240-245 lakh tonnes,” he said.
But, he said his Ministry is “slightly worried” about the pulses and edible oils situation. Chances are that the production of pulses and edible oil come down this year. Even internationally, availability is slightly low.
With this in mind, he said, the Government has decided to continue with the supply of pulses and edible oils at subsidised price. This year, the subsidy on pulses will be Rs 20 a kg and on edible oils Rs 15 a litre. States are also allowed to import pulses and edible oil for distribution and it will be subsidised by the Central Government, he said.
Besides, the Central Government has decided to computerise the Public Distribution System end-to-end — from the Food Corporation of India godowns to state-run ration shops, every movement will be computerised. It is a 50:50 project, funded by the Central and respective State Governments.
Earlier there were 20 crore ration cards in the country. After the computerisation process began in some states, two crore cards were found to be bogus and eliminated from the system, he said. “PDS system has to be modernised. All the loopholes are to be plugged to strengthen the system, and make it more efficient,” he said.
Talking about the Food Security Bill, he said the Bill is being considered by the Parliament Standing Committee, and is likely to be passed. And, the Standing Committee is expected to submit its opinion in a month. “The Bill may be passed in the coming Winter Session,” he said.
Answering a question on wheat exports to Iran, he said the exports are going on under Open General Licence scheme. The central pool has 80.5 mt of wheat, while what is required for public distribution is only 55 mt. So, exports will continue till the need to stop it arises.
On food subsidy bill and whether the government plans any cut, he said the government is bound to give food items on subsidised rates. At present, he said, food subsidy alone accounts for Rs 88,000 crore, and it will continue. “There is nothing to be worried,” he said.
September 23, 2012
Prime Minister's Address to the Nation
Prime Minister, Dr. Manmohan Singh addressed the nation on Friday, 21 September 2012. Following is the text of the Prime Minister’s address:
“My dear brothers and sisters,
I am speaking to you tonight to explain the reasons for some important economic policy decisions the government has recently taken. Some political parties have opposed them. You have a right to know the truth about why we have taken these decisions.
No government likes to impose burdens on the common man. Our Government has been voted to office twice to protect the interests of the aam admi.
At the same time, it is the responsibility of the government to defend the national interest, and protect the long term future of our people. This means that we must ensure that the economy grows rapidly, and that this generates enough productive jobs for the youth of our country. Rapid growth is also necessary to raise the revenues we need to finance our programmes in education, health care, housing and rural employment.
The challenge is that we have to do this at a time when the world economy is experiencing great difficulty. The United States and Europe are struggling to deal with an economic slowdown and financial crisis. Even China is slowing down.
We too have been affected, though I believe we have been able to limit the effect of the global crisis.
We are at a point where we can reverse the slowdown in our growth. We need a revival in investor confidence domestically and globally. The decisions we have taken recently are necessary for this purpose.
Let me begin with the rise in diesel prices and the cap on LPG cylinders.
We import almost 80% of our oil, and oil prices in the world market have increased sharply in the past four years. We did not pass on most of this price rise to you, so that we could protect you from hardship to the maximum extent possible.
As a result, the subsidy on petroleum products has grown enormously. It was Rs. 1 lakh 40 thousand crores last year. If we had not acted, it would have been over Rs. 200,000 crores this year.
Where would the money for this have come from? Money does not grow on trees. If we had not acted, it would have meant a higher fiscal deficit, that is, an unsustainable increase in government expenditure vis-a-vis government income. If unchecked, this would lead to a further steep rise in prices and a loss of confidence in our economy. The prices of essential commodities would rise faster. Both domestic as well as foreign investors would be reluctant to invest in our economy. Interest rates would rise. Our companies would not be able to borrow abroad. Unemployment would increase.
The last time we faced this problem was in 1991. Nobody was willing to lend us even small amounts of money then. We came out of that crisis by taking strong, resolute steps. You can see the positive results of those steps. We are not in that situation today, but we must act before people lose confidence in our economy.
I know what happened in 1991 and I would be failing in my duty as Prime Minister of this great country if I did not take strong preventive action.
The world is not kind to those who do not tackle their own problems. Many European countries are in this position today. They cannot pay their bills and are looking to others for help. They are having to cut wages or pensions to satisfy potential lenders.
I am determined to see that India will not be pushed into that situation. But I can succeed only if I can persuade you to understand why we had to act.
We raised the price of diesel by just Rs. 5 per litre instead of the Rs 17 that was needed to cut all losses on diesel. Much of diesel is used by big cars and SUVs owned by the rich and by factories and businesses. Should government run large fiscal deficits to subsidise them?
We reduced taxes on petrol by Rs. 5 per litre to prevent a rise in petrol prices. We did this so that the crores of middle class people who drive scooters and motorcycles are not hit further.
On LPG, we put a cap of 6 subsidised cylinders per year. Almost half of our people, who need our help the most, actually use only 6 cylinders or less. We have ensured they are not affected. Others will still get 6 subsidised cylinders, but they must pay a higher price for more.
We did not touch the price of kerosene which is consumed by the poor.
My Dear Brothers and Sisters,
You should know that even after the price increase, the prices of diesel and LPG in India are lower than those in Bangladesh, Nepal, Sri Lanka and Pakistan.
The total subsidy on petroleum products will still be Rs. 160 thousand crores. This is more than what we spend on Health and Education together. We held back from raising prices further because I hoped that oil prices would decline.
Let me now turn to the decision to allow foreign investment in retail trade. Some think it will hurt small traders. This is not true.
Organised, modern retailing is already present in our country and is growing. All our major cities have large retail chains. Our national capital, Delhi, has many new shopping centres. But it has also seen a three-fold increase in small shops in recent years.
In a growing economy, there is enough space for big and small to grow. The fear that small retailers will be wiped out is completely baseless.
We should also remember that the opening of organised retail to foreign investment will benefit our farmers. According to the regulations we have introduced, those who bring FDI have to invest 50% of their money in building new warehouses, cold-storages, and modern transport systems. This will help to ensure that a third of our fruits and vegetables, which at present are wasted because of storage and transit losses, actually reach the consumer. Wastage will go down; prices paid to farmers will go up; and prices paid by consumers will go down.
The growth of organised retail trade will also create millions of good quality new jobs.
We recognise that some political parties are opposed to this step. That is why State governments have been allowed to decide whether foreign investment in retail can come into their state. But one state should not stop another state from seeking a better life for its farmers, for its youth and for its consumers.
In 1991, when we opened India to foreign investment in manufacturing, many were worried. But today, Indian companies are competing effectively both at home and abroad, and they are investing around the world. More importantly, foreign companies are creating jobs for our youth -- in Information Technology, in steel, and in the auto industry. I am sure this will happen in retail trade as well.
My Dear Brothers and Sisters,
The UPA Government is the government of the aam aadmi.
In the past 8 years our economy has grown at a record annual rate of 8.2 per cent. We have ensured that poverty has declined much faster, agriculture has grown faster, and rural consumption per person has also grown faster.
We need to do more, and we will do more. But to achieve inclusiveness we need more growth. And we must avoid high fiscal deficits which cause a loss of confidence in our economy.
I promise you that I will do what everything necessary to put our country back on the path of high and inclusive growth. But I need your support. Please do not be misled by those who want to confuse you by spreading fear and false information. The same tactics were adopted in 1991. They did not succeed then. They will not succeed now. I have full faith in the wisdom of the people of India.
We have much to do to protect the interests of our nation, and we must do it now. At times, we need to say "No" to the easy option and say "Yes" to the more difficult one. This happens to be one such occasion. The time has come for hard decisions. For this I need your trust, your understanding, and your cooperation.
As Prime Minister of this great country, I ask each one of you to strengthen my hands so that we can take our country forward and build a better and more prosperous future for ourselves and for the generations to come.
Jai Hind.”
“My dear brothers and sisters,
I am speaking to you tonight to explain the reasons for some important economic policy decisions the government has recently taken. Some political parties have opposed them. You have a right to know the truth about why we have taken these decisions.
No government likes to impose burdens on the common man. Our Government has been voted to office twice to protect the interests of the aam admi.
At the same time, it is the responsibility of the government to defend the national interest, and protect the long term future of our people. This means that we must ensure that the economy grows rapidly, and that this generates enough productive jobs for the youth of our country. Rapid growth is also necessary to raise the revenues we need to finance our programmes in education, health care, housing and rural employment.
The challenge is that we have to do this at a time when the world economy is experiencing great difficulty. The United States and Europe are struggling to deal with an economic slowdown and financial crisis. Even China is slowing down.
We too have been affected, though I believe we have been able to limit the effect of the global crisis.
We are at a point where we can reverse the slowdown in our growth. We need a revival in investor confidence domestically and globally. The decisions we have taken recently are necessary for this purpose.
Let me begin with the rise in diesel prices and the cap on LPG cylinders.
We import almost 80% of our oil, and oil prices in the world market have increased sharply in the past four years. We did not pass on most of this price rise to you, so that we could protect you from hardship to the maximum extent possible.
As a result, the subsidy on petroleum products has grown enormously. It was Rs. 1 lakh 40 thousand crores last year. If we had not acted, it would have been over Rs. 200,000 crores this year.
Where would the money for this have come from? Money does not grow on trees. If we had not acted, it would have meant a higher fiscal deficit, that is, an unsustainable increase in government expenditure vis-a-vis government income. If unchecked, this would lead to a further steep rise in prices and a loss of confidence in our economy. The prices of essential commodities would rise faster. Both domestic as well as foreign investors would be reluctant to invest in our economy. Interest rates would rise. Our companies would not be able to borrow abroad. Unemployment would increase.
The last time we faced this problem was in 1991. Nobody was willing to lend us even small amounts of money then. We came out of that crisis by taking strong, resolute steps. You can see the positive results of those steps. We are not in that situation today, but we must act before people lose confidence in our economy.
I know what happened in 1991 and I would be failing in my duty as Prime Minister of this great country if I did not take strong preventive action.
The world is not kind to those who do not tackle their own problems. Many European countries are in this position today. They cannot pay their bills and are looking to others for help. They are having to cut wages or pensions to satisfy potential lenders.
I am determined to see that India will not be pushed into that situation. But I can succeed only if I can persuade you to understand why we had to act.
We raised the price of diesel by just Rs. 5 per litre instead of the Rs 17 that was needed to cut all losses on diesel. Much of diesel is used by big cars and SUVs owned by the rich and by factories and businesses. Should government run large fiscal deficits to subsidise them?
We reduced taxes on petrol by Rs. 5 per litre to prevent a rise in petrol prices. We did this so that the crores of middle class people who drive scooters and motorcycles are not hit further.
On LPG, we put a cap of 6 subsidised cylinders per year. Almost half of our people, who need our help the most, actually use only 6 cylinders or less. We have ensured they are not affected. Others will still get 6 subsidised cylinders, but they must pay a higher price for more.
We did not touch the price of kerosene which is consumed by the poor.
My Dear Brothers and Sisters,
You should know that even after the price increase, the prices of diesel and LPG in India are lower than those in Bangladesh, Nepal, Sri Lanka and Pakistan.
The total subsidy on petroleum products will still be Rs. 160 thousand crores. This is more than what we spend on Health and Education together. We held back from raising prices further because I hoped that oil prices would decline.
Let me now turn to the decision to allow foreign investment in retail trade. Some think it will hurt small traders. This is not true.
Organised, modern retailing is already present in our country and is growing. All our major cities have large retail chains. Our national capital, Delhi, has many new shopping centres. But it has also seen a three-fold increase in small shops in recent years.
In a growing economy, there is enough space for big and small to grow. The fear that small retailers will be wiped out is completely baseless.
We should also remember that the opening of organised retail to foreign investment will benefit our farmers. According to the regulations we have introduced, those who bring FDI have to invest 50% of their money in building new warehouses, cold-storages, and modern transport systems. This will help to ensure that a third of our fruits and vegetables, which at present are wasted because of storage and transit losses, actually reach the consumer. Wastage will go down; prices paid to farmers will go up; and prices paid by consumers will go down.
The growth of organised retail trade will also create millions of good quality new jobs.
We recognise that some political parties are opposed to this step. That is why State governments have been allowed to decide whether foreign investment in retail can come into their state. But one state should not stop another state from seeking a better life for its farmers, for its youth and for its consumers.
In 1991, when we opened India to foreign investment in manufacturing, many were worried. But today, Indian companies are competing effectively both at home and abroad, and they are investing around the world. More importantly, foreign companies are creating jobs for our youth -- in Information Technology, in steel, and in the auto industry. I am sure this will happen in retail trade as well.
My Dear Brothers and Sisters,
The UPA Government is the government of the aam aadmi.
In the past 8 years our economy has grown at a record annual rate of 8.2 per cent. We have ensured that poverty has declined much faster, agriculture has grown faster, and rural consumption per person has also grown faster.
We need to do more, and we will do more. But to achieve inclusiveness we need more growth. And we must avoid high fiscal deficits which cause a loss of confidence in our economy.
I promise you that I will do what everything necessary to put our country back on the path of high and inclusive growth. But I need your support. Please do not be misled by those who want to confuse you by spreading fear and false information. The same tactics were adopted in 1991. They did not succeed then. They will not succeed now. I have full faith in the wisdom of the people of India.
We have much to do to protect the interests of our nation, and we must do it now. At times, we need to say "No" to the easy option and say "Yes" to the more difficult one. This happens to be one such occasion. The time has come for hard decisions. For this I need your trust, your understanding, and your cooperation.
As Prime Minister of this great country, I ask each one of you to strengthen my hands so that we can take our country forward and build a better and more prosperous future for ourselves and for the generations to come.
Jai Hind.”
October 22, 2011
Agriculture Minister Calls for Reforms in Agriculture Marketing
Minister of Agriculture and Food Processing Industries Shri Sharad Pawar has called for reforms in agricultural marketing. He said, the prevailing system which comprises regulated markets set up by the States under APMC Act has become a constraint on farmers’ ability to market their produce at the best possible prices. Shri Pawar was addressing the Parliamentary Consultative Committee attached to his Ministry here today.
The Minister said, large number of intermediaries and large transaction costs, such as market fee, entry tax make marketing reforms a priority. He said, “ We continue to pursue this with States and have achieved some success. Our model APMC Act of 2003 has been adopted, to varying degrees so far by 17 States and nine States have also framed the Rules . There is no APMC Act in Bihar, Kerala, Manipur, Andaman & Nicobar Islands, Dadra, & Nagar Havel, Daman & Diu and Lakshadweep.”
Shri Pawar said, “Farmers, specially small and marginal are unable to take advantage of the market system and often have to resort to distress sale. Access to safe and scientific storage facility, coupled with efficient credit is the solution.” The Minister said that Centre endeavours to provide this through Grameen Bhandarn Yojana. Since inception of the scheme in 2001, over 25 000 godowns representing incremental capacity of about 290 lakh MT with a total investment of Rs. 800 crore have been sanctioned.
Under the Grameen Bhandaran Yojana subsidy is being provided @ 25% of the project cost to all categories of farmers, Agriculture graduates, cooperatives & CWC/SWCs. All other categories of individuals companies and corporations are being given subsidy @ 15% of the project cost. In case of NE States, hilly areas and SC/ST entrepreneurs, their cooperatives and women farmers, the subsidy is 33.33%.
This scheme has now been further rationalized, on the basis of feedback and suggestions received from the states. Capital Cost norms have been revised to more realistic levels: from Rs. 2500/- to Rs. 3500/- per tonne in respect of godowns of capacity up to 1000 tonnes and from Rs. 1875 to Rs. 3000 per tonne for godwons exceeding 1000 tonne capacity. For the North Eastern and hilly States, the norm permissible is now Rs. 4000/- per tonne. Similarly, the scheme which hitherto could take up schemes of maximum capacity of 10,000 tonnes can now go upto 30,000 tonnes (25,000 for NE and hilly States).
The Minister said, large number of intermediaries and large transaction costs, such as market fee, entry tax make marketing reforms a priority. He said, “ We continue to pursue this with States and have achieved some success. Our model APMC Act of 2003 has been adopted, to varying degrees so far by 17 States and nine States have also framed the Rules . There is no APMC Act in Bihar, Kerala, Manipur, Andaman & Nicobar Islands, Dadra, & Nagar Havel, Daman & Diu and Lakshadweep.”
Shri Pawar said, “Farmers, specially small and marginal are unable to take advantage of the market system and often have to resort to distress sale. Access to safe and scientific storage facility, coupled with efficient credit is the solution.” The Minister said that Centre endeavours to provide this through Grameen Bhandarn Yojana. Since inception of the scheme in 2001, over 25 000 godowns representing incremental capacity of about 290 lakh MT with a total investment of Rs. 800 crore have been sanctioned.
Under the Grameen Bhandaran Yojana subsidy is being provided @ 25% of the project cost to all categories of farmers, Agriculture graduates, cooperatives & CWC/SWCs. All other categories of individuals companies and corporations are being given subsidy @ 15% of the project cost. In case of NE States, hilly areas and SC/ST entrepreneurs, their cooperatives and women farmers, the subsidy is 33.33%.
This scheme has now been further rationalized, on the basis of feedback and suggestions received from the states. Capital Cost norms have been revised to more realistic levels: from Rs. 2500/- to Rs. 3500/- per tonne in respect of godowns of capacity up to 1000 tonnes and from Rs. 1875 to Rs. 3000 per tonne for godwons exceeding 1000 tonne capacity. For the North Eastern and hilly States, the norm permissible is now Rs. 4000/- per tonne. Similarly, the scheme which hitherto could take up schemes of maximum capacity of 10,000 tonnes can now go upto 30,000 tonnes (25,000 for NE and hilly States).
April 16, 2011
Growth in India, China helped in poverty eradication
Rapid growth in economies like India and China has helped millions of people escape the dungeons of poverty and based on current economic projections,the world is on track to reduce the number of extremely poor people by half, the World Bank and IMF said in a report.
"Two-thirds of developing countries are on track or closeto meeting key targets for tackling extreme poverty and hunger,"the World Bank and IMF report --"Global Monitoring Report 2011: Improving the Odds of Achieving the MDGs"said.
On current trends, and despite the recent global economic crisis, developing countries are on track to reach the global target of cutting income poverty in half by 2015, thanks inlarge part to rapid growth in China and India, it added.
Giving statistics, the report said the number of people living on less than USD 1.25 a day is projected to be 883million in 2015, compared to 1.4 billion in 2005 and 1.8 billion in 1990.
Regarding India, the report said in 1990 as many as 51.3 per cent of Indian population was living on less than USD 1.25 a day, which got reduced to 41.6 per cent in 2005 and is expected to further decline to 22.4 per cent in 2015.
The decline in poverty has been more drastic in China,where in 1990, as much as 60 per cent people were living under USD 1.25 per day, which is likely to reduce to 4.8 per cent by 2015, the report added. Commenting on the findings, World Bank director of development prospects Hans Timmer said "reaching the MDGs is a significant achievement for developing countries. But there is still much to do in reducing poverty and improving health outcomes even in the successful countries".
Among developing countries, 45 per cent are far from meeting the target on access to sanitation; 39 per cent and 38per cent are far from the maternal and child mortality targets, respectively, the report added.
"The challenge in low income countries is to sustain and accelerate growth through better policies that will createjobs and greater opportunities for the private sector,"Hugh Bredenkamp, deputy director of the IMF's Strategy, Policy, andReview Department said.
Bredenkamp further added that"advanced economies need to do their part to secure the global recovery, by repairingand reforming their financial systems and tackling their fiscal imbalances".
The report calls for measures to support access to tradefinance and trade facilitation to connect vulnerable lowincome countries, landlocked economies and lagging regions toregional and international markets.
Amidst the recent global financial crisis, trade has started to recover, but sustaining it will require steps to strengthen the international system, guard against protectionist tendencies, and push for a conclusion of the Doha Round of international trade negotiations, it said.
"Two-thirds of developing countries are on track or closeto meeting key targets for tackling extreme poverty and hunger,"the World Bank and IMF report --"Global Monitoring Report 2011: Improving the Odds of Achieving the MDGs"said.
On current trends, and despite the recent global economic crisis, developing countries are on track to reach the global target of cutting income poverty in half by 2015, thanks inlarge part to rapid growth in China and India, it added.
Giving statistics, the report said the number of people living on less than USD 1.25 a day is projected to be 883million in 2015, compared to 1.4 billion in 2005 and 1.8 billion in 1990.
Regarding India, the report said in 1990 as many as 51.3 per cent of Indian population was living on less than USD 1.25 a day, which got reduced to 41.6 per cent in 2005 and is expected to further decline to 22.4 per cent in 2015.
The decline in poverty has been more drastic in China,where in 1990, as much as 60 per cent people were living under USD 1.25 per day, which is likely to reduce to 4.8 per cent by 2015, the report added. Commenting on the findings, World Bank director of development prospects Hans Timmer said "reaching the MDGs is a significant achievement for developing countries. But there is still much to do in reducing poverty and improving health outcomes even in the successful countries".
Among developing countries, 45 per cent are far from meeting the target on access to sanitation; 39 per cent and 38per cent are far from the maternal and child mortality targets, respectively, the report added.
"The challenge in low income countries is to sustain and accelerate growth through better policies that will createjobs and greater opportunities for the private sector,"Hugh Bredenkamp, deputy director of the IMF's Strategy, Policy, andReview Department said.
Bredenkamp further added that"advanced economies need to do their part to secure the global recovery, by repairingand reforming their financial systems and tackling their fiscal imbalances".
The report calls for measures to support access to tradefinance and trade facilitation to connect vulnerable lowincome countries, landlocked economies and lagging regions toregional and international markets.
Amidst the recent global financial crisis, trade has started to recover, but sustaining it will require steps to strengthen the international system, guard against protectionist tendencies, and push for a conclusion of the Doha Round of international trade negotiations, it said.
April 14, 2011
High Capital flows, commodity prices threat to economy: BRICS
Amid continuing global uncertainty, the BRICS grouping which include India and China, today cautioned that volatile commodity prices and excessive capital inflows into developing countries, pose threat to world economic recovery.
"Excessive volatility in commodity prices, particularly those for food and energy, poses new risks for the ongoing recovery of the world economy," said the joint statement released after BRICS Summit said here.
The declaration also highlighted issues concerning excessive capital flows to emerging nations."We call for more attention to the risks of massive cross-border capital flows now faced by the emerging economies", it added.
The statement was issued after the Summit, which was attended by Indian Prime Minister Manmohan Singh, Russian President Dmitry Medvedev, Chinese President Hu Jintao, Brazil's Dilma Rousseff and South Africa's Jacob Zuma.
BRICS which is a grouping of Brazil, Russia, India, China and South Africa represents 3 billion people from different continents of the world and account for 18 per cent of the global GDP.
Early this week, the International Monetary Fund (IMF) too had warned that rising food and commodity prices pose at threat to poor households, adding to social and economic tensions, notably in the Middle East and North Africa.
"The international community should work together to increase production capacity, strengthen producer-consumer dialogue to balance supply and demand, and increase support to the developing countries in terms of funding and technologies", it added.
BRICS also called for a mechanism to address the problem of inadequate reliable and timely information on demand and supply at international, regional and national levels.
"The BRICS will carry out closer cooperation on food security," the statement added.
Noting the world economy still faces" uncertainties", the declaration, stressed that the international community needed to step up efforts to reduce distortion, further regulate financial market and promote sound banking systems.
Major economies of the world, the declaration said," should continue to enhance coordination of macro economic policies and work together to achieve strong, sustainable and balanced growth."
"Excessive volatility in commodity prices, particularly those for food and energy, poses new risks for the ongoing recovery of the world economy," said the joint statement released after BRICS Summit said here.
The declaration also highlighted issues concerning excessive capital flows to emerging nations."We call for more attention to the risks of massive cross-border capital flows now faced by the emerging economies", it added.
The statement was issued after the Summit, which was attended by Indian Prime Minister Manmohan Singh, Russian President Dmitry Medvedev, Chinese President Hu Jintao, Brazil's Dilma Rousseff and South Africa's Jacob Zuma.
BRICS which is a grouping of Brazil, Russia, India, China and South Africa represents 3 billion people from different continents of the world and account for 18 per cent of the global GDP.
Early this week, the International Monetary Fund (IMF) too had warned that rising food and commodity prices pose at threat to poor households, adding to social and economic tensions, notably in the Middle East and North Africa.
"The international community should work together to increase production capacity, strengthen producer-consumer dialogue to balance supply and demand, and increase support to the developing countries in terms of funding and technologies", it added.
BRICS also called for a mechanism to address the problem of inadequate reliable and timely information on demand and supply at international, regional and national levels.
"The BRICS will carry out closer cooperation on food security," the statement added.
Noting the world economy still faces" uncertainties", the declaration, stressed that the international community needed to step up efforts to reduce distortion, further regulate financial market and promote sound banking systems.
Major economies of the world, the declaration said," should continue to enhance coordination of macro economic policies and work together to achieve strong, sustainable and balanced growth."
Indian stock market worst performing despite recent recovery
Even after growing by nearly seven per cent in the March-April till date period driven by healthy foreign fund inflows, the Indian stock market is yet to catch up with its emerging market peers and is still the worst performing equity market, says a report.
The BSE benchmark index Sensex has lost 13 per cent between December 31, 2010 and February 28, 2011 on the back of worries emanating from corruption, disruption and non-functioning of the parliament, rapidly rising inflation in essential articles (food and fuel) and growing unrest in the Middle East and North Africa region.
However, it managed to reverse the downward trend and gained over 10 per cent from February 28 to April 13, 2011. "The market has done well especially in March bolstered by heavy FII flows. But, it has not yet caught with the emerging market peers. The Indian market is still the worst performer till date even below Japan (Nikkei),"a report by MAPE Securities Private Limited said.
Globally, equity markets have been rising even under the shadows of Middle East unrest, rapidly rising commodity prices, continuing downgrades and bailouts in the EU, catastrophe in Japan and continued fragility of recovery of the US and European economies, it said. The emerging markets performed well in the year till date where Russia, China and Thailand markets were among the top five major markets. However, India and Brazil among BRIC and emerging markets were down during the Q1 2011, the report added.
Japan was the worst performing market in the year so far but, still has been better than India. The earthquake led to severe damage to the industrial infrastructure in Japan besides causing nuclear radiation from a nuclear plant, it said.
The study believes that the recent improvement in FII flows into the country as well as Indian equity markets performance were a result of positive factors. They included a favourable Union Budget (FY12), attempt to curb central government's fiscal deficit in FY12 to 4.6 per cent of GDP and new FDI deals such as BP-Reliance Industries, Nippon-Reliance Capital and Vodafone-Essar. It noted that key domestic positive triggers for the Indian markets over the next three-months would be 18-20 per cent growth estimate for corporate earnings for FY12, (IIP) growth in 7-9 per cent range for FY12, moderation in WPI inflation levels to 7 per cent range by June 2012 and peaceful elections in four-states and a union territory.
Meanwhile, the report feared that any major slowdown on earnings may impact the market negatively from present levels. The report also highlighted some of the risks for the Indian markets which include continuing global social unrest, sustained high levels of crude prices and continued enhancements in global food prices.
The BSE benchmark index Sensex has lost 13 per cent between December 31, 2010 and February 28, 2011 on the back of worries emanating from corruption, disruption and non-functioning of the parliament, rapidly rising inflation in essential articles (food and fuel) and growing unrest in the Middle East and North Africa region.
However, it managed to reverse the downward trend and gained over 10 per cent from February 28 to April 13, 2011. "The market has done well especially in March bolstered by heavy FII flows. But, it has not yet caught with the emerging market peers. The Indian market is still the worst performer till date even below Japan (Nikkei),"a report by MAPE Securities Private Limited said.
Globally, equity markets have been rising even under the shadows of Middle East unrest, rapidly rising commodity prices, continuing downgrades and bailouts in the EU, catastrophe in Japan and continued fragility of recovery of the US and European economies, it said. The emerging markets performed well in the year till date where Russia, China and Thailand markets were among the top five major markets. However, India and Brazil among BRIC and emerging markets were down during the Q1 2011, the report added.
Japan was the worst performing market in the year so far but, still has been better than India. The earthquake led to severe damage to the industrial infrastructure in Japan besides causing nuclear radiation from a nuclear plant, it said.
The study believes that the recent improvement in FII flows into the country as well as Indian equity markets performance were a result of positive factors. They included a favourable Union Budget (FY12), attempt to curb central government's fiscal deficit in FY12 to 4.6 per cent of GDP and new FDI deals such as BP-Reliance Industries, Nippon-Reliance Capital and Vodafone-Essar. It noted that key domestic positive triggers for the Indian markets over the next three-months would be 18-20 per cent growth estimate for corporate earnings for FY12, (IIP) growth in 7-9 per cent range for FY12, moderation in WPI inflation levels to 7 per cent range by June 2012 and peaceful elections in four-states and a union territory.
Meanwhile, the report feared that any major slowdown on earnings may impact the market negatively from present levels. The report also highlighted some of the risks for the Indian markets which include continuing global social unrest, sustained high levels of crude prices and continued enhancements in global food prices.
July 15, 2008
Tackling Inflation
Inflation is a global phenomenon as the current inflation is not confined to India alone. The continuous rise in crude prices along with price rise in essential commodities like food grains, processed foods, metals and chemicals have contributed to the present situation. Poor production and diversification of food grains for bio fuels have resulted in shortage of food grains and, hence, price rise. So far the government has taken various measures to tackle inflation. But, even after all those measures inflation crossed the double digit. So, there is a need to ensure that monetary tightness does not affect the growth momentum.
Since last few months the discussion throughout the world has been crude oil prices and inflation. In India government gives a lot more importance to WPI inflation figure. This year the inflation figure has broken all the records. It has touched a new high since last few years. It is argued that inflation this year is imported. To say in simple way, crude oil prices are pushing the inflation to record heights. India’s import of crude is almost 70 per cent. So, it can’t do anything about the crude prices. But, yes it can try to insulate the consumers from the inflation shock.
Steps taken by Government:
Government banned exports of rice, wheat, pulses and other food articles and brought down the import duty on edible oils and other food items to zero. It also raised the minimum export price for basmati rice and maize. Moreover, it simultaneously banned the trading of potato, chana, rubber and refined soya oil in the commodity market. Last year, government had banned trading in rice, turmeric, wheat and some pulses though a year later it was found that prices still went on rising. It also allowed import of steel, iron ore and cement at zero duty. Moreover, to discourage exports of these items it imposed certain export duty. Government had also requested the cement and steel companies not to increase the prices.
At the same time, Reserve bank of India (RBI) had raised the Repo rate and CRR. This was done to tighten the liquidity in the Indian market. But, raising interest rates mean curbing the demand. If the demand is curbed then there would be a slow down in the growth. So, many analysts already feel that these steps have already affected many sectors.
Can inflation be tamed?
Yes, it can be with proper planning and policies. Oil prices have risen with sudden pace not because oil consumption has increased considerably. It has increased because the speculators have become more active in oil futures. Banning speculation in futures trading will not help. What we can do is that we should allow our rupee to appreciate against dollar. If rupee becomes stronger then the price of oil for Indian company will be lower. This step will affect exports especially from the IT sector an textiles. But, government can help exporters through various ways.
Government should focus more on better supply management of food grains and other essential commodities. According to Centre’s fourth advance estimates for crop production, the country’s total food grain production in 2007-08 (June-May crop year) is pegged at an impressive 230 million tonnes; wheat alone accounting for 78 million tonnes. Rice production is estimated to be 96.34 million tonnes which is almost one million tonnes over the 95.6 million tonnes estimated in April. Hence, the most critical task for the government is to strengthen its public distribution system and creating a better infrastructure for storing the food grains.
To curb inflation, RBI has taken various monetary steps like increasing CRR and Repo rate. This is affecting the growth of the Indian economy. Therefore, instead of rate hike RBI should allow the rupee to appreciate by releasing more dollars in the economy. A stronger rupee is a bigger tool to fight against inflation as imports of crude oil and other essential commodities like pulses become much cheaper. At the same time, government should try to curb the speculative activities by merchants, traders and middlemen through better supply chain management of food grains and improving public distribution system.
Energy consumption should be brought down. We consume three times more energy, as a percentage of GDP, than the world average. This can be done through various means. A study has shown that the energy required for agriculture pumping is drastically reduced if the groundwater table is raised. Railways consume only one-third of the energy needed to move things to places as against road transport. Water transports consume even less. Therefore, government should focus on building infrastructure in this regard so that we start using these alternatives more frequently. Also, energy from non-oil sources should be developed. The private sector should be encouraged to use more renewable source like solar, wind, waves, tides, hydro and biomass to generate energy.
We lack good infrastructure. If infrastructure improves, the cost of goods and services comes down. Hence, government should quickly build highways, power plants and ports.
Centre for Monitoring Indian Economy Private Limited (CMIE) estimates the expected inflation for this year at around 5.5 per cent. This estimate is based on the expected good monsoon and overall good kharif crop. The food situation problem should not be a long-term problem. Higher prices will induce farmers to increase their produce. But, government will have to take care as higher prices do not always reach farmers. So, government must create conditions where farmers are able to sell their produce directly to consumers so that both can benefit.
Since last few months the discussion throughout the world has been crude oil prices and inflation. In India government gives a lot more importance to WPI inflation figure. This year the inflation figure has broken all the records. It has touched a new high since last few years. It is argued that inflation this year is imported. To say in simple way, crude oil prices are pushing the inflation to record heights. India’s import of crude is almost 70 per cent. So, it can’t do anything about the crude prices. But, yes it can try to insulate the consumers from the inflation shock.
Steps taken by Government:
Government banned exports of rice, wheat, pulses and other food articles and brought down the import duty on edible oils and other food items to zero. It also raised the minimum export price for basmati rice and maize. Moreover, it simultaneously banned the trading of potato, chana, rubber and refined soya oil in the commodity market. Last year, government had banned trading in rice, turmeric, wheat and some pulses though a year later it was found that prices still went on rising. It also allowed import of steel, iron ore and cement at zero duty. Moreover, to discourage exports of these items it imposed certain export duty. Government had also requested the cement and steel companies not to increase the prices.
At the same time, Reserve bank of India (RBI) had raised the Repo rate and CRR. This was done to tighten the liquidity in the Indian market. But, raising interest rates mean curbing the demand. If the demand is curbed then there would be a slow down in the growth. So, many analysts already feel that these steps have already affected many sectors.
Can inflation be tamed?
Yes, it can be with proper planning and policies. Oil prices have risen with sudden pace not because oil consumption has increased considerably. It has increased because the speculators have become more active in oil futures. Banning speculation in futures trading will not help. What we can do is that we should allow our rupee to appreciate against dollar. If rupee becomes stronger then the price of oil for Indian company will be lower. This step will affect exports especially from the IT sector an textiles. But, government can help exporters through various ways.
Government should focus more on better supply management of food grains and other essential commodities. According to Centre’s fourth advance estimates for crop production, the country’s total food grain production in 2007-08 (June-May crop year) is pegged at an impressive 230 million tonnes; wheat alone accounting for 78 million tonnes. Rice production is estimated to be 96.34 million tonnes which is almost one million tonnes over the 95.6 million tonnes estimated in April. Hence, the most critical task for the government is to strengthen its public distribution system and creating a better infrastructure for storing the food grains.
To curb inflation, RBI has taken various monetary steps like increasing CRR and Repo rate. This is affecting the growth of the Indian economy. Therefore, instead of rate hike RBI should allow the rupee to appreciate by releasing more dollars in the economy. A stronger rupee is a bigger tool to fight against inflation as imports of crude oil and other essential commodities like pulses become much cheaper. At the same time, government should try to curb the speculative activities by merchants, traders and middlemen through better supply chain management of food grains and improving public distribution system.
Energy consumption should be brought down. We consume three times more energy, as a percentage of GDP, than the world average. This can be done through various means. A study has shown that the energy required for agriculture pumping is drastically reduced if the groundwater table is raised. Railways consume only one-third of the energy needed to move things to places as against road transport. Water transports consume even less. Therefore, government should focus on building infrastructure in this regard so that we start using these alternatives more frequently. Also, energy from non-oil sources should be developed. The private sector should be encouraged to use more renewable source like solar, wind, waves, tides, hydro and biomass to generate energy.
We lack good infrastructure. If infrastructure improves, the cost of goods and services comes down. Hence, government should quickly build highways, power plants and ports.
Centre for Monitoring Indian Economy Private Limited (CMIE) estimates the expected inflation for this year at around 5.5 per cent. This estimate is based on the expected good monsoon and overall good kharif crop. The food situation problem should not be a long-term problem. Higher prices will induce farmers to increase their produce. But, government will have to take care as higher prices do not always reach farmers. So, government must create conditions where farmers are able to sell their produce directly to consumers so that both can benefit.
Inflation Eating Your Savings
What does inflation mean to anyone? Does it really affect you? If we look a few months back, everybody was talking how America will do. Will it be able to maintain its investment in India and so on! Nobody was talking about domestic issues. Now look today. Every now and then we hear the finance minister talking about current account deficit and fiscal deficit. So if a person like finance minister talks about such issues, it’s a signal that there are problems for our economy in future. Current account deficit which is 3 per cent at this moment is expected to go up to 5 per cent and fiscal deficit is expected to be pushed to 9 per cent from the current 6 per cent.
What is inflation? Inflation refers to the rise in the price of products and subsequent fall in the value of money. Suppose the price of a product today is Rs.100 and the inflation today is around 10 percent then, the price of product next year would be Rs.110. Therefore, the product that you could buy today for Rs.100 will cost you an extra Rs.10 next year. So, in other words the value of your Rs.100 has decreased by Rs.10 or the product has suffered an inflation of 10 per cent. Therefore, whether you are a salaried person or self employed, you cannot escape from the monster inflation. You need to insulate yourself from this. What are the risks?
Every investment must cover the inflation risk. Many people get it wrong. Suppose you invest in a fixed deposit that pays you 8 per cent per annum. If the expected rate of inflation is 5 per cent, the real rate of return is only 3 per cent. This is because while the Rs.100 will grow up to Rs.108, the price of the product will move from Rs.100 to Rs.105. So, a year later there is only Rs.3 addition to your wealth. Now, look at the present scenario. The expected rate of inflation this year is around 11 percent (remember crude oil is expected to record new heights every day). So, in real terms your investment has grown from Rs.100 to Rs.108 but the price of the product has risen to Rs.111. You have lost Rs.3.
Second is the interest rate risk. Interest rates are volatile. They don’t stay static. They move up and down. Interest rate risk refers to the impact that the rising interest rates have on bond values. When interest rates go up, the value of the existing bond prices come down and your yield goes up. Same is true for the reverse. Say, a company issues a bond with a face value of Rs.100 and a coupon rate of 8 per cent. Say, its current market price is Rs.100. Now look at this amongst the rising inflation. Interest rates will be increased by RBI to curb the rising inflation. Suppose, now the company issues a fresh bond with a face value of Rs.100 and a coupon of 11 per cent. Does this mean any thing to you? You will surely sell the earlier bond with a lower coupon and buy this new bond with a higher coupon. But who will buy your bond? The prices will come down to a certain level which would give a return of 11 per cent. Therefore, rising inflation may lead to interest rate hike and fall in the value of existing bond.
Then, there are default risk, liquidity risk and the re-investment risk. Liquidity risk can be when you want to exit from a bond but due to high interest rates, you have to sell at a lower price. Similarly, re-investment risk means when your deposits say in mutual fund or fixed deposits cannot be invested back at the same rate. It is invested at a lower rate.
What is inflation? Inflation refers to the rise in the price of products and subsequent fall in the value of money. Suppose the price of a product today is Rs.100 and the inflation today is around 10 percent then, the price of product next year would be Rs.110. Therefore, the product that you could buy today for Rs.100 will cost you an extra Rs.10 next year. So, in other words the value of your Rs.100 has decreased by Rs.10 or the product has suffered an inflation of 10 per cent. Therefore, whether you are a salaried person or self employed, you cannot escape from the monster inflation. You need to insulate yourself from this. What are the risks?
Every investment must cover the inflation risk. Many people get it wrong. Suppose you invest in a fixed deposit that pays you 8 per cent per annum. If the expected rate of inflation is 5 per cent, the real rate of return is only 3 per cent. This is because while the Rs.100 will grow up to Rs.108, the price of the product will move from Rs.100 to Rs.105. So, a year later there is only Rs.3 addition to your wealth. Now, look at the present scenario. The expected rate of inflation this year is around 11 percent (remember crude oil is expected to record new heights every day). So, in real terms your investment has grown from Rs.100 to Rs.108 but the price of the product has risen to Rs.111. You have lost Rs.3.
Second is the interest rate risk. Interest rates are volatile. They don’t stay static. They move up and down. Interest rate risk refers to the impact that the rising interest rates have on bond values. When interest rates go up, the value of the existing bond prices come down and your yield goes up. Same is true for the reverse. Say, a company issues a bond with a face value of Rs.100 and a coupon rate of 8 per cent. Say, its current market price is Rs.100. Now look at this amongst the rising inflation. Interest rates will be increased by RBI to curb the rising inflation. Suppose, now the company issues a fresh bond with a face value of Rs.100 and a coupon of 11 per cent. Does this mean any thing to you? You will surely sell the earlier bond with a lower coupon and buy this new bond with a higher coupon. But who will buy your bond? The prices will come down to a certain level which would give a return of 11 per cent. Therefore, rising inflation may lead to interest rate hike and fall in the value of existing bond.
Then, there are default risk, liquidity risk and the re-investment risk. Liquidity risk can be when you want to exit from a bond but due to high interest rates, you have to sell at a lower price. Similarly, re-investment risk means when your deposits say in mutual fund or fixed deposits cannot be invested back at the same rate. It is invested at a lower rate.
March 18, 2008
Can India sustain the growth story?
Many Indians still believe that we can achieve 9% growth because we have abundant resources. No doubt India's economy is fundamentally sound. Our growth is because of consumption. But we cannot forget that US has an important role to play in everything.
Indian stock markets, a few months back was moving upward as if they were in a hurry to reach the peak. And then the market crashed. Lot have been written and spoken on decoupling theory. Consumption led Indian companies growth story sounds great but in reality, even they are not left when the west goes hammering the market.
A look at a decade back will reveal that even the Indian phenomenal growth was due to heavy spending by US. Americans borrowed a lot and spent over their disposable incomes thereby creating demand all over the world. It helped China to grow to a new height as it heavily relied on exports. At the same time, India exported competitive services to US to earn revenues.
But, India like other Asean countries needed to import huge quantities of various commodities to support its manufacturing industries and to meet the rising domestic needs. This created a viscous cycle where each country helped other country to grow. Commodities prices started rising up and the world economy started booming.
No growth can rely on over-consumption. So when the realty prices in US started falling, everyone realized the ugly fact that many people who could not repay were given huge loans. Subprime starts, markets crash. Mind you its not happening in India, still Indian markets are not left. They too get the thrashing.
Now it’s the reverse of the earlier viscous cycle. Less US spending means lesser imports from Asia, affecting India. So the countries that benefited from US overspending will now suffer. India is one among them.
The recent moves by RBI to curb liquidity in the market have shown far more affect then required. IIP figures released last week shows that the tight monetary policy has affected them badly. Now if we examine the India’s possibility to grow at 9% in the context of recent happening in the stock market, I believe that the growth story is not over. But it will slow down.
{Views expressed above are purely mine}
Indian stock markets, a few months back was moving upward as if they were in a hurry to reach the peak. And then the market crashed. Lot have been written and spoken on decoupling theory. Consumption led Indian companies growth story sounds great but in reality, even they are not left when the west goes hammering the market.
A look at a decade back will reveal that even the Indian phenomenal growth was due to heavy spending by US. Americans borrowed a lot and spent over their disposable incomes thereby creating demand all over the world. It helped China to grow to a new height as it heavily relied on exports. At the same time, India exported competitive services to US to earn revenues.
But, India like other Asean countries needed to import huge quantities of various commodities to support its manufacturing industries and to meet the rising domestic needs. This created a viscous cycle where each country helped other country to grow. Commodities prices started rising up and the world economy started booming.
No growth can rely on over-consumption. So when the realty prices in US started falling, everyone realized the ugly fact that many people who could not repay were given huge loans. Subprime starts, markets crash. Mind you its not happening in India, still Indian markets are not left. They too get the thrashing.
Now it’s the reverse of the earlier viscous cycle. Less US spending means lesser imports from Asia, affecting India. So the countries that benefited from US overspending will now suffer. India is one among them.
The recent moves by RBI to curb liquidity in the market have shown far more affect then required. IIP figures released last week shows that the tight monetary policy has affected them badly. Now if we examine the India’s possibility to grow at 9% in the context of recent happening in the stock market, I believe that the growth story is not over. But it will slow down.
{Views expressed above are purely mine}
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