Wednesday, April 30, 2008

Inflation in India – Where will it stop?

Indian economy is growing at robust pace. Just to compete with it are the prices of food items and industrial goods like steel and cement, which form the backbone of construction activity. The Indian Finance Minister was quick to intervene the galloping price rise by announcing a slew of fiscal measures. These anti inflationary steps cost the government Rs.1,500 crores. The earlier two interventions on the inflation had an impact of Rs.4,840 crores.
The main focus of the government is increasing the availability of steel products as well as softening their prices. The real estate business is already in slump and the increased steel prices are a nightmare to the construction business. Steel as a whole contributed 21.3% to the current inflation and its role in the economy can never be underestimated. The basic customs duty was cut on pig iron, granules, powders, ingots, billets, hot rolled coils etc.

As for as food products are concerned, in order to ensure adequate availability of milk in lean summer months, the basic customs duty on skim milk powder has been reduced to 5% from 15% and similarly for butteroil, it is down from 40 to 30%. An export duty of Rs.8,000 a ton has been slapped on Basmati rice.

Mr.Y.V.Reddy, the Governor of Reserve Bank of India (RBI) is optimistic about the GDP growth touching 8.5% and hope that the inflation will be contained at 5.5% level. Notwithstanding this, the RBI has hiked the cash reserve ratio by 25 base points to suck out Rs.9,000 crores from the system so that too much money won’t chase too few goods. The CRR is now at 8.25%.
With all these fiscal measures, one can only hope that the inflation would fall to such a level so that the price of the essential commodities is within the reach of common man.

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