India takes steps to tame rising food prices
INDIA: Faced with a public outcry over rising prices, the Indian
government allowed private players to import wheat, pulses and sugar
under easier terms to contain inflation.
India's wholesale price inflation, the most widely watched measure of
inflation, is running at an annual rate of about 4.7 percent this month
from below 4 percent at the start of May.
Analysts expect it to rise above 5 percent when the impact of a
government-administered retail fuel price increase earlier this month
kicks in, boosting chances of an official rise in interest rates in July
when the central bank reviews monetary policy.
Although government data shows prices of food items have been inching
up gradually in wholesale markets, retail prices have gone up
"The decision to augment the supplies of wheat, pulses and sugar was
taken as they were driving inflation. I hope that with these steps,
inflationary expectations will be dampened," Finance Minister
Palaniappan Chidambaram said after a cabinet meeting.
The cabinet decision to allow easier imports of the three essential
items comes two weeks after the Reserve Bank of India raised its key
short-term interest rate by 25 basis points to 5.75 percent.
Pressure was mounting on the government to take action to curb price
rises with opposition parties and its key allies protesting the 6.6
percent increase in diesel and 9.2 percent rise in retail petrol prices.
Prices of vegetables, sugar, wheat and pulses have surged in the last
few weeks and the issue has hogged headlines.
A boom in construction has also pushed up prices of building
materials, especially cement. Prices of cement moderated after the
government warned manufacturers of stern action including a ban on
Rajeev Malik, economist with JP Morgan Chase in Singapore, said the
fuel price increase was likely to add 0.2 percent to headline inflation
and he forecast it nearer 6 percent by the end of the fiscal year next
Rajiv Kumar, a director of Indian Council for Research in
International Economic Relations, said: "It is important that the
inflationary expectations are dampened, as it leads to hoarding.
"Allowing imports of wheat and pulses by private players will surely
bring down their prices. But inflation is likely to cross 5 percent mark
soon," he added.
Traders have been demanding wheat imports by users like flour
millers, bread and biscuit makers at lower duty. Currently wheat imports
carry a 60 percent duty, which traders say is unviable and pushes up
The government this month floated tenders to import 2.2 million
tonnes of wheat and has received bids for the supply of about three
It has also awarded contracts to import 1.3 million tonnes of wheat,
mainly to augment government stocks. But the measures have so far failed
to dampen prices.
Wheat futures contracts on the domestic exchanges fell by 90-140
rupees per tonne after Thursday's decision.
Chidambaram said there was a need to import wheat as production had
been stagnating for some years while consumption was going up.
The government also waived duty on some sugar imports under a until
September this year to stem high sugar prices despite a bumper output.
Sugar output is forecast at close to 19.5 million tonnes in the year
ending September 2006. New Delhi, Friday, Reuters