Indian Economy: News and Discussion (June 8 2008)

negi · Post by **negi** » 21 Jun 2008 08:46

This ore export business is a serious concern , iirc whatever iron ore is mined from mines in GOA is exported to again Japan. Isn't this ironical while likes of Mittal and TATA's have made huge acquisitions outside our country still finds itslef at the end of the food chain supplying cheap raw material to the rest of the world.

Would resident economists and Industry experts care to elaborate on above ?

Suraj · Post by **Suraj** » 21 Jun 2008 10:08

The ore export subject has been discussed a few months ago. Theo_Fidel (where is he now ?) posted a response on the subject then:

Theo_Fidel wrote:India is not an efficient producer of Iron/Steel from the low quality ore available on the West coast.

Our steel mills have access to much better quality ore that can then use our high sulphur coal rather than the expensive coking coal required.

How can any expensive plant using low quality ore compete with the Tata's or Sail inside India? So we export it.

Banning export will mean they have to shut down, even local politicians understand this.

Effectively we export the ore we cannot efficiently process. Of course, it might be an option to invest in technology that enables us to process such ore. However, this is a capital and resource intesive area, while we still do not have our story straight as far as being able to faciliate rapid 'old industry' investment goes - POSCO's travails are an example.

I personally think GoI's attitude related to infrastructure investment lacks focus on the primary concern - how to streamline the process of everything from ore guarantee to land acqusition and related operations. Fix these, and the money will come in.

joshvajohn · Post by **joshvajohn** » 21 Jun 2008 14:47

Indian government should take control over the price spinners - who tend to make the good's prices to go up. There is a possiblity of emergency on those sellers who hide their goods to make the price to go up and also those who sell things at high cost. There is a need to bring businesses under control - a strong and heavy hand on industrial outputs and other sellers will show that some cannot exploit others the present situation.

pradeepe · Post by **pradeepe** » 21 Jun 2008 15:18

John Snow wrote: In UK pepsi and Coke want to share the trucks distributing the products.....

Pepsi and coke together, situation must indeed be dire.

Singha · Post by **Singha** » 21 Jun 2008 18:06

pain....extreme pain.... clubber lang

Singha · Post by **Singha** » 21 Jun 2008 20:59

I purchased a packet of sandwich bread yesterday for Rs 30. up from around Rs 22 last year.
almost a 100% jump. sticker shock.

TOI

Vacations on hold, kitchen budgets take a cut
21 Jun 2008, 0239 hrs IST, Deeksha Chopra,TNN

Families are pruning their household budgets to stay within their income as prices move northwards (TOI Photo)
More Pictures
NEW DELHI: With inflation shooting up to a 13-year high, the impact of rising prices can be felt on household budgets, cutting across the various social strata. From a well-off businessman in Greater Kailash to a government employee in Gole Market, everyone's feeling the pinch. And such desperate times have called for desperate measures.

Says Sarabjeet Gandhi, who deals in cars, "A few years back, we wouldn't even think twice before planning a holiday or a weekend getaway. But we could not plan a vacation this time, thanks to rising fuel costs. We have not only reduced our visits to restaurants, but also cut down on the number guests we entertain at home. Our family budget no longer permits such luxuries."

His five-member family in Greater Kailash-I, includes his elderly parents and son. The Gandhis also have two full-time domestic helps. Their monthly expenditure goes up to Rs 30,000. Sarbjeet's wife Simleen complains that she can no longer save from her kitchen budget. "I don't go on a vegetable/fruit shopping spree as I used to in the past to experiment with dishes and salads. Earlier, I would just pick up 4 kg mangoes from the racks. But now, I only get 1-2 kg, looking at the requirement. I used to save enough from the household budget to buy some clothes every month. That's no longer possible," she says.

The price rise has actually affected families to such an extent that even going for a second child is not an option for some. Rajneesh Goel, who works as an assistant manager at Prasar Bharti and earns Rs 10,000 a month, says his family expenditure has almost doubled.

Goel lives in a government flat in Gole Market with wife Poonam and a four-year-old son, Swarr. The couple says they can't even fulfil the basic demands of their only child owing to financial constraints. Swarr loves eating mutton, but his parents can no longer afford to buy the item as it costs Rs 200 per kg."My son loves mutton but we hardly make any at home. Bringing up one child is becoming difficult in such a tight budget. We were earlier having full-cream milk, but are now combining full-cream with toned milk for our daily consumption of 1.5 litres. Our consumption of edible oil has decreased from four to two litres. I can't even make pakoras or halwa-puri for guests and relatives," says Poonam.

Even seasonal fruits like mangoes are expensive. At Rs 50/kilo, mango prices have seen a jump of at least Rs 15 over previous year. "All fruits are expensive by about Rs 10-20 because of the incessant rain in some parts of the country. Bananas at Rs 25 a dozen are costly by about Rs 5 over last fortnight’s price," said a fruit vendor from Lajpat Nagar.

Fruits and vegetables aside, the prices of almost all basic commodities have shot up in the retail market. A consumer who last week paid Rs 25 for a kilo of loose rice will now have to pay up to Rs 40. Even items like soaps and biscuits have become costlier, report retailers. According to sources, cost of refined oil and mustard oil has gone up from Rs 60-70 in the previous fortnight to about Rs 90-100.

Similarly, rice and wheat have also seen a jump of about Rs 10-20 in the last week. "Almost every commodity has flared up. Some goods consumers can do without but with essentials like oil, wheat and price, people have no choice," said a wholesaler. Senior government officials said they were keeping a close check to prevent hoarding and blackmarketing.

With people in the higher income group grappling with inflation, it comes as no surprise that a domestic help from Bihar is struggling to make two ends meet. For 27-year-old Diven Rai, who works in a posh south Delhi colony, the rising prices of essential commodities have hit the most. As the only earning member, with a monthly salary of Rs 4,000, Rai has to support a family of two children and a wife. "How will the common man survive? Even the cheap rice that my family consumes now costs Rs 15/kg. The price of flour has also risen from Rs 12 to Rs 15/kg," he says.

"Fruits and vegetables have become a luxury. It costs me Rs 1,000 to run my house, which excludes what I have to pay for my children's education. With this price hike, I simply can't afford to send them to a good school," Rai adds. His wife Sharmila, who also works as a help, says: "We make our own food and don't eat at our employer's house. As we have two growing kids, aged six and nine, we can't compromise on their food. The rising expenditure is killing us."

Singha · Post by **Singha** » 21 Jun 2008 21:02

I did like everyone in the global financial "system" who brought this about to
suffer a lot more. its big, inbred, bloated and too full of sharks and easy
money. needs to be "pruned" and "controlled" down to a manageable
size.

world needs more rice, fish and wheat - not london based ibankers.

we are also seeing a lot of punctured pride already in the indian
scenario. all the MF "stars" of the last few good yrs (who mostly still
underperformed the sensex) are struggling to keep their pants on.
turns out few if any are peter lynch

though good times made
everyone seem like a god. now they have slunk away from the TV
spotlight to lick their wounds.

G Subramaniam · Post by **G Subramaniam** » 22 Jun 2008 01:35

Singha wrote:I did like everyone in the global financial "system" who brought this about to
suffer a lot more. its big, inbred, bloated and too full of sharks and easy
money. needs to be "pruned" and "controlled" down to a manageable
size.

world needs more rice, fish and wheat - not london based ibankers.

we are also seeing a lot of punctured pride already in the indian
scenario. all the MF "stars" of the last few good yrs (who mostly still
underperformed the sensex) are struggling to keep their pants on.
turns out few if any are peter lynch though good times made
everyone seem like a god. now they have slunk away from the TV
spotlight to lick their wounds.

Actually I buy EPI, an ETF run by wisdom tree sold on NYSE
They use a method called fundamental indexing
Google up this terms

EPI invests in low P-E indian companies

Basically this leads to a low P-E strategy and essentially immune to market collapses, since it only buys mainly low P-E companies

ETFs are no-load and have 0.5% annual fees and are traded like closed end funds ( without the discount from NAV )

John Snow · Post by **John Snow** » 22 Jun 2008 02:32

I shop once in a while in Target most of the time High Command, aska SHQ does the shopping ( as type this she is Sams/Target/Stop and Shop).

When I do go to Target I usually pick up Pop Corn and diet soda which is deal for $1.07 cents, the Corn chips and Cheese with Halepeno peppers and drink small is also 1.07.

Last week as usual I whipped up 1.07 cents, the store clerk gave me a dirty look, like I was from far away place, Honey the value of dollar is in the john, the thing you ordered cost $2.85 cents, my face already felt the sting of hot peppers , I took a quick gulp of soda and shelled out the amount.

This is just the begining onree

Singha · Post by **Singha** » 22 Jun 2008 09:25

OMG what is the world coming to? quick Leopold find
out who has the most reserves of diet soda and which
despotic regime rules that patch will ya ? we need to
free its oppressed people and clamp down on its WMD
program - defend freedom and restore democracy!!
call out the marines!!

this sums up the degree of control & management
Massa Govt has on the world economy right now

http://youtube.com/watch?v=v1o3LwdoaDM&feature=related

Paul · Post by **Paul** » 22 Jun 2008 12:46

An average desi family in massaland with 2 cars and saving their hard earned money to go back to desh one day must be spending at least $300- $500 on gas per month. Considering the fact that most of us FOBs have seen it all before in India where these shortages were a way of life till maybe 10 years ago, I think us FOBs can ride this through....but I shudder to think how much natives must be suffering in comparison

Neshant · Post by **Neshant** » 23 Jun 2008 04:39

its much more than that if you consider the impact energy price hikes have on all goods and services up and down the line.

Amitayus · Post by **Amitayus** » 23 Jun 2008 13:15

Suraj wrote:Effectively we export the ore we cannot efficiently process. Of course, it might be an option to invest in technology that enables us to process such ore. However, this is a capital and resource intesive area, while we still do not have our story straight as far as being able to faciliate rapid 'old industry' investment goes - POSCO's travails are an example.

I personally think GoI's attitude related to infrastructure investment lacks focus on the primary concern - how to streamline the process of everything from ore guarantee to land acqusition and related operations. Fix these, and the money will come in.

Broadly speaking, iron ores can be divided into two categories lumps (more than 60% iron content) and fines (less than 60% iron content). It is mostly the iron ore fines that are exported while the doemstic manufacturers use iron ore lumps (haematite). Although the mining lobby as well as the Hoda Committee says there is sufficient reserve in the country to feed its steel plants for the next 100 years, a few factors need to be taken into account. Firstly a large part of it in ecologically sensitive regions of Western Ghats and Orissa/Jharkhand. Supreme Court has banned mining near Kudremukh Sanctuary for ecological reasons. SC has also asked Vedanta to abandon plans for bauxite mining in Niyamgiri, Orissa, a big victory for tribals who were bitterly opposed to the project. Thus it is quite clear that in spite of having the resource, it will not be possible to mine them due to various restrictions. Number two point is according to National Steel Policy, the target for production of steel in India in the year 2020 will be 110-120 ml tonnes. Recently the Min. of Steel has revised it to a staggering 300 mil tonnes. So it is very difficult to predict the exact demand of iron ore in the year 2020. Simple arithmetic based on the production capacity of existing plants and other brownfield/greenfield projects as on 2008 will not work. Thirdly, the iron ore fines are beneficiated with a process called 'pelletization' which does not happen in India. However as the price of iron ore lumps has registered a steep hike in the past 2-3 years, steel prices have hit the ceiling, steel manufacturers are increasingly looking for beneficiation of iron ore fines. Jindal Steel has already started the process in Karnataka and West Bengal, SAIL is planning to set up pelletization plants in Dalli Rajhara .

http://sify.com/finance/fullstory.php?id=13907111

He said that the mining policy of the government should not allow one company to block major iron ore reserve and "we must develop the steel industry in the country."
Jindal also strongly urged for a ban on iron ore export. "Why should we export, when steel plants in the country are not getting iron ore? Export of ore whether high or low grade or fines should be stopped."

Turning to Jharkhand government's dilly dallying attitude on supply of iron ore to its project in the state, Jindal said that it had offered to set up a 5 million tonne pellet plant there at an expenditure of Rs 2,000 crore.

"We will also invest in Jharkhand and do value addition there from mining, beneficiation and pelletisation. We will bring the pellets to our proposed plant in West Bengal for iron and steel making. We are running a similar pellet plant in Karnataka."

http://www.thehindubusinessline.com/200 ... 690300.htm

STEEL Authority of India Ltd (SAIL) is setting up an iron ore beneficiation plant and along with it a pellet production unit at the captive mines of Bhilai Steel Plant in collaboration with a private party.

http://theeconomicstudies.com/news.php?nid=6

Steel Authority of India Limited (SAIL) is planning to set up three new greenfield pellet plants. A plant of 0.9 million tonnes per year capacity at Dalli mines in Chhattisgarh and a plant of around 1 million tonnes per year capacity at Gua mines in Jharkhand are being planned. There will no investment by SAIL for setting up these two plants. SAIL will provide iron ore fines to the parties who will set up the pellet plants and the parties will supply pellets to SAIL on 'conversion cost' basis. It has also been planned to set up another plant of 2 million tonnes per year capacity at Taldih mines in Orissa for which the total investment will be made by SAIL.

Fourthly the need of the hour is for the Govt. to announce heavy incentive to the local steel industry for beneficiation of fines than allow them to be shipped abroad especially to PRC. This will also ease the firm steel price in the domestic market and also stem the disastrous trend of exporting primary commodity instead of value added product.

http://www.indiansteelalliance.com/export.asp

It is interesting to note that Australia has a per capita reserve of 2000 tonnes or iron ore, Kazakhstan 1267 tonnes, Ukraine 1417 tonnes, Russia 389 tonnes and USA 50 tonnes. Yet few of them export iron ore. India with a trifling per capita availability of merely 21 tonnes is exporting 90 million tonnes annually. Even China, which has almost twice the reserves of India, is importing 50% of its requirement to extend the life of their domestic resources. The Hoda Committee, accepting the contentions of the mining industry, believes that with resources of a mere 23 million tonnes India can afford to export unlimited quantities of iron ore

By exporting such an immense quantity of iron ore year after year we are giving a wrong signal to the prospective FDI. India suffers from several infrastructural handicaps and a company like Tata Steel prefers to establish its Ferro-manganese plant tin South Africa. News reports indicate that it is planning to establish a 2 million tonne steel plant in Iran! If Indian iron ore of high quality continues to be freely accessible in the international market indefinitely, there is hardly any incentive for FDI to come to India. If a foreign investor can import the required quality and quantity of iron ore from India he would rather set up his plant in Thailand, South Africa or Korea rather than in India. POSCO and LN Mittal evincing keen interest in setting up steel plants in India is mainly due to the hopes of getting assured supply of iron ore next door.

The domestic steel industry is aware that the Goa region mines iron ore which is of low grade and which is not currently utilized by the domestic industry. Naturally this ore will continue to be exported until the domestic industry gears itself to utilize it within the country. The domestic steel industry is arguing, first of all, for an announcement by the government that exports from other regions excluding Goa will be tapered of within a reasonable period, say 5 - 7 years.

Ardeshir · Post by **Ardeshir** » 23 Jun 2008 13:56

Rupee Steepest Slide Since '93 Repels Funds on Prices

June 23 (Bloomberg) -- The Reserve Bank of India's first interest-rate increase in 15 months is turning into a case of too little, too late for the rupee.

Investors Pictet Asset Management Ltd. and Aberdeen Asset Management Plc, among the biggest enthusiasts for India, the past two years, can't sell the rupee fast enough. They say the quarter-percentage point boost in the benchmark rate to 8 percent on June 11 isn't enough to prevent the highest rate of inflation since 1995 from damaging the economy.

Singha · Post by **Singha** » 23 Jun 2008 14:34

sensex is stabilizing around the 14200 mark prepping for the next downleg.
the next quarterly earnings season is going to be brutal as the last ounces of fat and
flesh get cut away from over valued "India Story" cos.

there is no place to hide these days and only more bad news next couple of
years. I thinking it wont be surprising if sensex goes back to 8000 levels before
recovering. that would be where it should be if the "boom" of 2005 hadnt
kicked off.

so those moaning about their losses now could still lose 50% of their current
holdings.

vina · Post by **vina** » 23 Jun 2008 14:44

Amitayus wrote: Thirdly, the iron ore fines are beneficiated with a process called 'pelletization' which does not happen in India. However as the price of iron ore lumps has registered a steep hike in the past 2-3 years, steel prices have hit the ceiling, steel manufacturers are increasingly looking for beneficiation of iron ore fines. Jindal Steel has already started the process in Karnataka and West Bengal, SAIL is planning to set up pelletization plants in Dalli Rajhara .

Tata Steel has been using sintered fines for a long while now. Their captive mines used to produce quite a bit of it. The thing is that ores from places like Goa, which gets exported are the 2nd quality ores, with basically less iron ore content. From what I remember, the really high quality iron ore is the one in Durg, MP (dont know what state Durg is in now).. The Bhilai steel plant came up to exploit that ore.

vina · Post by **vina** » 23 Jun 2008 14:59

Prasant wrote: June 23 (Bloomberg) -- The Reserve Bank of India's first interest-rate increase in 15 months is turning into a case of too little, too late for the rupee.

Yup.. Totally agree. Reserve Bank forgot that it's primary role is to fight inflation and they acted like the Finance Ministry!!.. The should have clamped on the money supply far earlier. Now they have exposed the broader economy to big imbalances in both the fiscal and monetary side. I dont like the place where the Indian economy is in right now , one bit.. 11% inflation will create havoc on the wealth of the people. Politicos and other business fat cat whose "under the table" income automatically adjusts to price levels couldn't care less. But the aam admi is going to be seriously hit. I am afraid , Congress who were led up the fiscal garden path by the Left Front and the JNU Jhollahwallahs , primarily Jean Dreaze is going to pay heavily for this in the coming general elections.. People are going to remember the price of veggies, milk, dal, chawal.. and the cost of living. No one will remember how many holes they dug and filled thanks to NREGA or the loan write offs .. Forbearance would have been far better than write offs.. But oh no, they had to write off the loans to try and buy votes..

Kangress is in for a serious drubbing.

Amitayus · Post by **Amitayus** » 23 Jun 2008 15:10

vina wrote:Tata Steel has been using sintered fines for a long while now. Their captive mines used to produce quite a bit of it. The thing is that ores from places like Goa, which gets exported are the 2nd quality ores, with basically less iron ore content. From what I remember, the really high quality iron ore is the one in Durg, MP (dont know what state Durg is in now).. The Bhilai steel plant came up to exploit that ore.

Quite true, other than Goa region, export of fines need to be stopped with a timeline for setting up more pelletization plants in India as has been earlier pointed out by Indian Steel Alliance (although now defunct). High quality iron ore is available in Dalli Rajhara mines which supplies to Bhilai Steel Plant. This is in the state of Chhattisgarh. High quality iron ore is also available in Chiria and Gua mines (Jharkhand). High quality iron ore is also available in Bailadila in Dantewada district of Chhattisgarh.

svinayak · Post by **svinayak** » 23 Jun 2008 19:10

vina wrote:
Prasant wrote: June 23 (Bloomberg) -- The Reserve Bank of India's first interest-rate increase in 15 months is turning into a case of too little, too late for the rupee.
Yup.. Totally agree. Reserve Bank forgot that it's primary role is to fight inflation and they acted like the Finance Ministry!!.. The should have clamped on the money supply far earlier. Now they have exposed the broader economy to big imbalances in both the fiscal and monetary side. I dont like the place where the Indian economy is in right now , one bit.. 11% inflation will create havoc on the wealth of the people. Politicos and other business fat cat whose "under the table" income automatically adjusts to price levels couldn't care less. But the aam admi is going to be seriously hit. I am afraid , Congress who were led up the fiscal garden path by the Left Front and the JNU Jhollahwallahs , primarily Jean Dreaze is going to pay heavily for this in the coming general elections.. People are going to remember the price of veggies, milk, dal, chawal.. and the cost of living. No one will remember how many holes they dug and filled thanks to NREGA or the loan write offs .. Forbearance would have been far better than write offs.. But oh no, they had to write off the loans to try and buy votes..

Kangress is in for a serious drubbing.

Earlier Reserve bank was independent of the Finance ministry and was focused on the inflation economy. This time it was influenced by the lobby people to keep the stock market high so that psy ops of big growth is maintained - 10percent.
This was a political plan (with a large lobby )to create the image of 10% growth for the country and show huge gains in stock market and invite large FDI creating business relationship with large foreign wealth. This plan did not see the sub-prime crisis looming in the international finance market which hit them hard and also the policy makers were blind to the commodity futures and its implications until too late.

svinayak · Post by **svinayak** » 23 Jun 2008 19:24

India is trying to be in the big league when it does not have any major advantage in the international trade.

The difference between India and other BRICs is that Russia is a net exporter of oil, while Brazil is the world's biggest exporter of beef, coffee, orange juice and sugar. China posted a record $262 billion trade surplus in 2007 and has $1.68 trillion of currency reserves.

India imports about 75 percent of its oil, which has almost doubled in price in the past year. The rising cost added to the shortfall in the country's current account, a broad measure of trade and investment flows. The deficit widened to a record $13.4 billion in 2007, central bank data show.

With elections less than a year away, Singh waived more than $17 billion in loans owed by farmers, and a government panel recommended higher salaries for 4 million state employees.

India's budget deficit may widen to 9.1 percent of GDP in the fiscal year ending March 31, from 6 percent last year, Lehman analysts Sonal Varma and Robert Subbaraman wrote in a June 16 report. The ``twin deficits'' in trade and government finance may drive investors away, causing the rupee to drop to 43.50 a dollar by Sept. 30, they wrote.

Central bank Governor Yaga Venugopal Reddy refrained from raising rates for more than a year, while the government revised its inflation estimates higher in each of the first 15 weeks of 2008 by an average of 0.8 percentage point.

ramana · Post by **ramana** » 24 Jun 2008 02:38

From Deccan Chronicle, Hyderabad chronicle section. Matches GD's obeservations on this page.

City laments price hike

With inflation having shot up to an all-time high of 11.05 per cent, the common man is the most affected, having to deal with spiralling food prices. When some people are consciously starving themselves to stay slim, the other half seems to have no choice but to tighten their belts to cope with the hike.

Anandita Markandeya, a homemaker, says, "We have to cut down on meat, snacks and luxury items since we can’t cut down on the essentials."Rise in prices of food products is particularly evident in fruits, vegetables, dairy, meat and pulses.

An interesting fact is that shopping in supermarkets might just make more sense than heading to your local grocers. Buddhadeb K., an economic analyst for the Nutrition Institute of India, says, organised retail sells food items at cheaper rates than traditional retailers in urban areas. "According to findings, groceries are 33 per cent cheaper in these supermarkets. Fruits are cheaper by 15 per cent, atta by 14 per cent, mustard oil by 5 per cent, oil by 6 per cent and so on." {Is this the begining of the Walmartization of Indian retail?}

Surprisingly in South India where rice is the staple food, prices have shot up by over 40 per cent, despite AP and Tamil Nadu being the largest producers in the country. {Shades of Modi's talk will come from these states in future} Devika J., an Infosys employee, says, "Even buying cooking oil has become an expensive affair with minimum price being Rs 80 for a litre. Prices are increasing but salary slabs are the same," she says.

Homemakers like Arundathi D., are planning to take up jobs. "I’ve decided to look for a job so that my salary can pay for the monthly groceries," she says.

Many restaurants are losing business. Arogya Shetty, owner of a Udipi tiffin centre, says, "Even if I hike prices on my menu, profit share is going to suffer. If the government reduces the rate of VAT, prices might go down."

Eating out is also going to be a rare affair, if things keep going at this rate. "Earlier, the whole family could eat in less than Rs 500, now we have to pay Rs 1,000 and above. Eating out will now be restricted only to special occasions. Even a cup of Irani chai costs Rs 5 now and biryani prices have also shot up.

Trade analysts are predicting that the price hike would result in consumers spending an extra Rs 190 crore a month only in AP.

Middile class is getting hurt.

Paul · Post by **Paul** » 24 Jun 2008 03:43

Inflation in double digit a rarity in Indian economy
Mumbai (PTI): A double-digit inflation rate has been a rarity in Indian economy and it was only in early 1990s and during 1994-95 that inflation hovered above the ten per cent mark, according to the website of Reserve Bank of India.

The RBI website, which gives average monthly inflation figures with the base of 1993-94, tells that the last time inflation was in double digit was in April-May 1995 when it ruled above 11 per cent.

The mid 1990s saw a very high inflation and for 12 months in a row from June 1994 till May 1995, the rate of inflation was in double digits.

Prior to that, there was a period when the economy witnessed double digit inflation for a period of 21 months, from November 1990 till July 1992 with a high of 16.3 per cent recorded in September 1991.

However, the base year for calculating the inflation numbers at that dime was the year 1981\82.

The all-time high for inflation was recorded in February and March of 1995 when it hit 16.9 per cent.

The mid 1990s was also the period when inflation went down dramatically . The RBI data suggests that inflation dropped gradually from 11 per cent plus in May of 1995 to 4.5 per cent in February 1996.

Subsequently, it was a period of low inflation with only occasional blips. The lowest level was in February 2002 when it was only 1.4 per cent.

http://www.hindu.com/thehindu/holnus/00 ... 220321.htm

A dated article showing the long view of the economy.

Suraj · Post by **Suraj** » 24 Jun 2008 04:29

India to Consider Easing Ban on Export of Rice, Wheat By Sept

India, the world's second-biggest producer of wheat and rice, may consider easing a ban on exports of the grains as early as September after the nation harvests record crops, agriculture minister Sharad Pawar said.

Wheat production in the South Asian nation may reach 78 million metric tons in the year to June 30, exceeding the 76.8 million tons estimated in February, the minister told reporters in New Delhi today. Rice production may reach 95.7 million tons, the farm ministry said April 22.

Prime Minister Manmohan Singh's government banned rice exports in April and wheat shipments in 2006 to safeguard supplies and slow food-price escalation. The government has bought 22.2 million tons of wheat from farmers and may sell the grain in the open market to cool prices, Pawar said.

``Wheat production and procurement will be the highest since India's independence,'' Pawar said.

India's wholesale prices unexpectedly accelerated to a 13- year high of 11.05 percent in the week to June 7, after gaining 8.75 percent in the previous week, as record crude oil costs forced the government to raise retail fuel prices for the second time in four months.

The government isn't planning to ban futures trading in more commodities to curb inflation as it's focused on boosting supplies of essential commodities, Pawar said. India last month expanded a ban on futures trading in rice, wheat and lentils to include soybean oil, rubber, chickpeas and potatoes to curb speculation.

Farmers planted rice in 969,000 hectares (2.4 million acres) as of June 20, 6.8 percent less than a year earlier, while sugarcane was planted on 4.07 million hectares, down from 4.75 million hectares a year earlier, the farm ministry said last week.

The area planted to soybeans more than quadrupled to 103,000 hectares from a year ago, while peanuts were sown on 237,000 hectares, more than the 189,000 hectares from last year, according to the government.

joshvajohn · Post by **joshvajohn** » 24 Jun 2008 11:50

How to curb the growing inflation?

The food prices cannot be stopped as other prices go up. The Government has to allow the prices of the grains to go up some how because this will help the survival of the farmers and labourers but rationing is one way of supply and distribution to the poor masses. Government must make sure that the new rising poor (because of the inflation) also receives basic things through ration shops at a reasonable price. I realise there are enough rationing practices in India but it is the management of distribution and supply to those who really need rather than to the public itself.

Government should also think about taxes on the export of food grains and other basic things rather than stopping them. Once the government wanted people to export a lot of things abroad but now the government must make sure that the subsidiarised food grains are not simply sold in the international market at Indian price rather at international price (fair trading). The venders from the West buy food grains at the local price and sell them for huge profits in the West. This should be somehow stopped. Government must also make sure that the quality of these goods are maintained.

Government must also try to devalue Indian currency a bit. Government does not want to do anything against speculators who tend to invest in everything that is profitable. I think if this speed of inflation continues even the neoliberal economic system will collapse as speculation in the market economy will bring growth not only down but also destroy it. So India should tell the nations that some of the commodities should not be brought under market investment. If it is brought then it should be monitored as basic commodities and even petrol should not be influenced by the speculators and investors for their immediate profits.

Government must also radically control business industry to many extent such as Cement industries have been naughty along with steel besides Petrol. They were the manipulators of Indian economy and were causes for our inflation in the beginning. I think India should allow these companies to have different ways of selling. For example some of the commodities can be sold at a low price for those who cannot afford to whereas at their normal prices to those who are able to pay for it. This is possible government agencies or shops with special cards.

Government should also allow the flow of money into India freely. One cannot control the present situation but take strong measures to curb the further outburst of inflation.

vina · Post by **vina** » 24 Jun 2008 22:39

RBI hiked CRR by 50 bps today evening. Interest rates are on their inexorable way up. Watch for the stock market to go off the cliff tomorrow morning. Interest rate sensitives like banks, capital goods, financials and realty will get walloped.

Yeah.. if this doesn't prick the real estate bubble ,I cant imagine what will. Interest rate of 14% upwards sure are not going to get anyone running to take loans of multiple lakhs to plonk down on an apt.. Good luck to the builders hoping to sell in random suburbs in Bangalore at Rs 4000 and 5000 a sqft. For speculators who are holding on to property, if they dont sell now and run, watch the fun, when the real estate prices start gathering momentum in the downward direction. It is going to be Massa land repeated here all over again.

DLF, Unitech and all the biggies surely are going to get hammered big time tomorrow.

Remember, BR ahead of the curve always.. If anyone tells you other wise, tell them that it was at BRF in the Indian Economy forum, a bunch of bloggers called the peak of the Sensex, despite boosters for sensex at 25,000 going rah rah.. Market at 10,000 seems like a distinct possibility, esp if MMS govt falls.

Suraj · Post by **Suraj** » 24 Jun 2008 23:14

Vina: The rate hikes will affect asset bubbles, and will at least in the short term affect consumer spending as well. However, with a combination of good agricultural output and significant core sector / manufacturing investment coming onstream over the course of the year, there will be significant downward pressure on the interest rates if you look at a period further than 6 months ahead.

The main wild cards are oil and a lameduck GoI resorting to scorched earth populist measures. In the case of the former, there's already talk of how oil prices are far unlinked from fundamentals and constitute a bubble of its own. Contrary to standard talk of 'India + China are driving up the price of oil', I feel that growth in these countries can drive *down* the price of oil to more meaningful levels. Why ? Because part of the oil price spurt is speculative money searching for avenues where they can maintain value. Continued strong macroeconomic growth would provide this money an incentive to go into someplace other than a very volatile commodity like oil.

vina · Post by **vina** » 24 Jun 2008 23:35

Suraj wrote:Vina: The rate hikes will affect asset bubbles, and will at least in the short term affect consumer spending as well. However, with a combination of good agricultural output and significant core sector / manufacturing investment coming onstream over the course of the year, there will be significant downward pressure on the interest rates if you look at a period further than 6 months ahead.

I think the RBI was late by atleast 6 months in clamping down on money supply. The loose fiscal policies of the GOI didnt help either. The RBI and the govt gambled on all the stars lining up perfectly for a crap shoot so that they can have both populism AND high growth. Unfortunately what they did with that was gamble away any maneuver room in bad economic headwinds. True enough, global inflation rose, oil prices shot up and commodities prices reached skywards.. The ability of the indian economy to handle such shocks eroded and that is coming home to roost now.

In the case of the former, there's already talk of how oil prices are far unlinked from fundamentals and constitute a bubble of its own. Contrary to standard talk of 'India + China are driving up the price of oil', I feel that growth in these countries can drive *down* the price of oil to more meaningful levels. Why ? Because part of the oil price spurt is speculative money searching for avenues where they can maintain value. Continued strong macroeconomic growth would provide this money an incentive to go into someplace other than a very volatile commodity like oil.

The back of the oil bubble will collapse only when the holding costs rise dramatically and the saudis and other big producers start cheating and pumping oil way beyond their quota (there is every incentive to do so.).. Yeah, the oil bubble will collapse eventually. But until then, it will create havoc with the economies around the world. India and China need to allow oil prices to rise in domestic markets to tamp down demand. Lower demand is one sure way to kill the oil bubble monster and create incentives for big producers like Saudis to cheat and grab a bigger share of a shrinking market.

joshvajohn · Post by **joshvajohn** » 25 Jun 2008 03:14

This is a second recent incident. I assume this is a possible impact of Indian government ineffectiveness and carelessness on the economic situation of the labour class and middle class in India.

I do not wish to sensationalise this issue. But it reflects the effect the inflation can cause on majority labour and lower middle class families in India. This article is in Tamil and the second story in times of India.

http://www.dinamalar.com/Topnewsdetail. ... d=266&cls=

http://timesofindia.indiatimes.com/arti ... 886417.cms

I suppose these are the losers of the neo-liberal game while politicians make out of it the most! India needs strategic thinking forces for building up our economy and also providing a running life for the working class.

Without which we will be disintegrating and Harvard and Oxford degrees will not help!!!!

Singha · Post by **Singha** » 25 Jun 2008 12:05

fair value of sensex seems to be 10300 if we take 6000 in Jan05 and
assume 20% uptick in the last 3 years.

the downside looks like 3500 points more

Suraj · Post by **Suraj** » 25 Jun 2008 12:21

The current interest rate and inflation rate conditions are rather interesting; the latter is a few percentage points higher than the former. FDs are breakeven propositions in this situation.

RBI cannot easily ramp up interest rates because of political pressures to the contrary. While the official inflation rate ought to moderate in the near future, prices of essentials are rising faster. There will be folks searching for greater RoI as a result.

The US economic scene remains in funk, with the potential for significant downtrends over summer and autumn. The commodities and oil bubble is increasingly leading to questions about speculative activity. Some of that money will exit.

While consumer spending (PFCE) is showing a downtrend in India, investment activity (GFCF) is shown an increase over the last two years, and more than compensates for PFCE slowdown. In other words, there are still a broad range of companies with strong fundamentals going forward.

My view is that this portends a return to Indian equities; due to to domestic and international drivers. The Sensex may yet bottom out, but the above conditions lead me to think it'll then stabilize rather higher than assumed, or not bottom out strongly at all.

Just another contrarian view

vina · Post by **vina** » 25 Jun 2008 12:25

Singha wrote:fair value of sensex seems to be 10300 if we take 6000 in Jan05 and
assume 20% uptick in the last 3 years.

the downside looks like 3500 points more

Why are you complaining ? ..You were one of the guys who got "religion" and sold at 19,000 levels, took the money and ran!

. I guess you are sitting pretty on all that cash.. Is there any inflation indexed fixed income instrument in India ? That looks like a good place to park the funds.

Watch out for the fun and games in the real estate sector. This is after all just the start of the interest rate increase cycle. The US is going to raise rates sooner or later. To keep rupee from dropping and "importing" inflation, the interest rate in India has to follow that as well.. I see peak rates at at least 400 bps from current levels.. ie a PLR of around 12 to 13% and a good 15 to 16% min in the hands of retail... which is really current credit card level rates that get offered to me via sms for "personal" loans from HSBC , Citi etc.. Obviously with 15% interest rates, housing will be hit hugely.. Prices have to drop.. Keep all that cash in hand or as near cash (laddered FDs etc) , and jump in when the housing prices correct reasonably and the big builders see the writing on the wall, eat crow and drop prices..

Singha · Post by **Singha** » 25 Jun 2008 12:57

could happen for the biggies but their current crop of projs is mainly in areas
like wfield, yelehanka, kanakpura if you look at blr. the more prime areas
were sold off in the boom era. and they are not going to launch new projects
until situation improves.
if you feel strongly about it could get a good deal in yelehanka and wait
a few yrs until the city engulfs that region and the place becomes reasonable.

places like richmond town, langford town, cox town, ulsoor, lavelle road in CBD are always going to be costly. so will plots of land in the prime BDA layouts within city.

once the skyway completes in 09, the elec-city-attibele parts will also
become driveable.

ideal location is 100x100ft plot in kmangala 4th block behind BDA komplex.
but sadly all the "it czars" have already cornered that patch of wood

Katare · Post by **Katare** » 25 Jun 2008 20:37

It is CRR and repo-rate hike which would mop-up excess liquidity and help Rupee keep it's value. It would have some impact on interest rates but not more than 0.5% increase in PLR. CRR rates are pretty low in India when compared to China (15%) or other countries that are battling inflation. Real interest rates are still pretty low in India with hefty salary increases and inflation indexing. Real home loans still cost ~5% which is very competitive

We are still in good shape, there is no long term structural problem which would cause prolonged inflation. Good monsoon, bumper harvest and new manufacturing capacity coming online would have positive impact on inflation in coming months. I still think we would finish current financial year with an average inflation of 5.5-6.0 or lower.

John Snow · Post by **John Snow** » 25 Jun 2008 21:20

vina wrote:
Singha wrote:fair value of sensex seems to be 10300 if we take 6000 in Jan05 and
assume 20% uptick in the last 3 years.

the downside looks like 3500 points more
Why are you complaining ? ..You were one of the guys who got "religion" and sold at 19,000 levels, took the money and ran! . I guess you are sitting pretty on all that cash.. Is there any inflation indexed fixed income instrument in India ? That looks like a good place to park the funds.

Watch out for the fun and games in the real estate sector. This is after all just the start of the interest rate increase cycle. The US is going to raise rates sooner or later. To keep rupee from dropping and "importing" inflation, the interest rate in India has to follow that as well.. I see peak rates at at least 400 bps from current levels.. ie a PLR of around 12 to 13% and a good 15 to 16% min in the hands of retail... which is really current credit card level rates that get offered to me via sms for "personal" loans from HSBC , Citi etc.. Obviously with 15% interest rates, housing will be hit hugely.. Prices have to drop.. Keep all that cash in hand or as near cash (laddered FDs etc) , and jump in when the housing prices correct reasonably and the big builders see the writing on the wall, eat crow and drop prices..

Vina Garu you have not accounted for the amount of Black money that is into real estate, so the prices may show marginal drop not much.

Also recently I mailed out $15,000 check for a engineering seat for my nephew who thought his uncle is very well off in the =land of Honey and milk. He did milk me, since he said he would repay the six lakh (interest free), (its a different matter that already forgot me) I obliged grudgingly. (blood is thicker than Dollars and sense)

. Now this chap paid all that six lakhs to get a seat in Engg college which did not even give him a recipt. I am told today the seats are being sold at Dus Lakh. This is the scale of looting in India which surpasses the Clives and hastings era.
The interesting part is the cash generated is coming from out of the country most times (for these seat purchases)

Neshant · Post by **Neshant** » 25 Jun 2008 21:20

my investments in precious metals has stagnated.

despite the soaring price of oil, jitters in the stock market and inflation, prices continue to stagnate.

the prices are either being manipulated by the govt to hide the real weakness of the dollar or I'm missing something.

Had I stayed in cash I might have been better off although the interest the banks pay are ridiculously low. I don't think anyone expects any positive news coming out of real estate or the stock market for the next 12 months and beyond.

John Snow · Post by **John Snow** » 25 Jun 2008 21:23

The speculation in commodity prices is for the Banks to recover the money they lost in subprime saga.
This way they can turn the books black from red. Note Citi group which is being financed from dubai (oil sheiks) are themselves using the these bamks to push oil up and up and away!

Paul · Post by **Paul** » 25 Jun 2008 22:44

The interesting part is the cash generated is coming from out of the country most times (for these seat purchases)

White man's burden?

vina · Post by **vina** » 25 Jun 2008 23:12

John Snow wrote:. Now this chap paid all that six lakhs to get a seat in Engg college which did not even give him a recipt. I am told today the seats are being sold at Dus Lakh.

No way!.. I think your cousin has been had. I am not the authority on this, but from what I hear ,the Engg college seats are not even getting filled in the Mgmt /payment seats quota. The prices are nowwhere as high as you mention and all the decent ones give a receipt.. Anyone with first hand info. please fill in.

John Snow · Post by **John Snow** » 26 Jun 2008 00:00

No way!.. I think your cousin has been had. I am not the authority on this, but from what I hear ,the Engg college seats are not even getting filled in the Mgmt /payment seats quota. The prices are nowwhere as high as you mention and all the decent ones give a receipt.. Anyone with first hand info. please fill in.

the dus Lakh college

svinayak · Post by **svinayak** » 26 Jun 2008 00:31

This ICICI bank is part owned by the Rockefellers and the Abu Dhabi Bank.

http://specials.rediff.com/money/2008/jun/25sd7.htm

India story can boom for 20 years, if. . .: Kamath

June 25, 2008

He said he has never seen so much investment flowing into the country. In India, currently, projects worth more than $750 billion are in the pipeline. He said Indian industries are sitting on a cash pile of $150 billion. He told some top investors, "You don't need to finance at all." - This is true

Kamath was addressing a seminar on India's Financial Markets organised by Asia Society, Confederation of Indian Industry, and Financial Technologies Ltd, amongst others.

While introducing him, Nazneen Karmali of Forbes Asia said that Kamath is the man credited with transforming a 'wholesale institution into retail.' ICICI Bank has 27 million customers, of which 8 million customers were added in the last year alone -- that is more than the population of Singapore. The bank has 1,300 branches and $95 billion in assets, which are increasing at the rate of 40 per cent, year on year.

At the Asia Society event, Kamath assured Americans, saying: "India is a big story and we are all running behind that big story. In the last few years, consumer credit has been the major driver. We seized the opportunity 2001 onwards. As long as India's growth story stays at around 10 per cent, the Indian banking sector will grow at 25-30 per cent, he said.

He conceded that it is not easy for global banks to set up branches in a third country. What is easier, he said, is to go in for acquisitions.

Image: New York's elite trooped in to attend the Asia Society's seminar -- India's Financial Markets -- in New York.