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The Budget - Is this fair?

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Oil to play major role in world power play: PM
Thursday June 12 2008 00:00 IST PTI
NEW DELHI: With the skyrocketing oil prices heavily weighing on his mind, Prime Minister Manmohan Singh on Wednesday said that the quest for access to oil resources will become a major factor of power play in the world and the Chinese have moved far ahead.

"The world is not able to grapple with the crises that it faces... The demand is increasing faster than ever before and the quest for access to the oil resources is going to become another major factor of power play in the world," he said addressing the IFS probationers here.

Singh said the Chinese have been going around the world in Africa, in Latin America, investing, exploring and developing the natural resources for increased oil production. "This tension will increase in the years to come. So the quest for sensitive natural resources, oil security, energy security will emerge as a major source of interplay of forces in the evolving world economy," the Prime Minister said.

Singh said India has to recognise that there would be increasing competition from China and those who were well entrenched in the energy sector. "So, therefore, tensions will be part of the evolving world systems and how we handle our problems, how we project our national interests, will be a crucial determinant of our capacity to be successful in the race for development," Singh added.
Cut-Down on Oil Subsidy ! Let the free market prevail

Currently the Oil is priced at $60 a barrel. The actual cost is > $130 a barrel. Why are we subsidising Oil ? Let us see what happens if the oil prices soar higher. When there are no clean roads to remote villages why is the Government subsidising the rich and the romeos ? The loss on Oil and Gas the country bears is much higher than the farm subsidies. Not to mention the inherent anti-green in the policy.
Oil subsidy may triple to 2.2% of GDP
Sunday, 01 June , 2008, 17:31
Last Updated: Sunday, 01 June , 2008, 18:22

New Delhi: India's oil subsidy may shoot up three times to 2.2 per cent of the GDP this year even as the government dithers on raising fuel prices in step with the rise in input (crude oil) cost.

The country paid USD 8.7 billion in oil subsidies in 2007 or 0.7 per cent of the GDP.

In 2008 when GDP is slated to grow to USD 1.34 trillion, the subsidy may jump to USD 18.1 billion at 100 dollars a barrel crude price, and to USD 23.4 billion at 115 dollars. At current market price, it would rise to USD 29.2 billion, Credit Suisse said in its latest report on subsidies in Asia.

State-run fuel retailers Indian Oil, Bharat Petroleum and Hindustan Petroleum face a revenue loss of Rs 225,040 crore on sale of petrol, diesel, domestic LPG and kerosene this fiscal on not being allowed to align retail prices with cost.

BPCL and HPCL would run out of cash to even import crude oil in July while IOC can sustain imports till September. Yet, even after several rounds of consultations at the level of Prime Minister Manmohan Singh and UPA Chairperson Sonia Gandhi, no decision has been taken on either raising retail prices and/or cutting duties.

"India with a high net import content, is in greater need for price hikes," Credit Suisse said pointing that the country imported 75 per cent of its oil needs.

On the other hand, China, which imports 52 per cent of its oil needs, is continuing price caps and yet would see subsidies rising to only 0.3-0.8 per cent of the GDP.

India marginally subsidises LPG and kerosene from the budget and meets less than half of the revenue loss on fuel sales through issue of oil bonds. It issued IOC, BPCL and HPCL oil bonds worth Rs 35,290 crore in 2007-08 fiscal.

Credit Suisse said with General Elections slated for May 2009, "any action from the government is likely to be limited."

"The recent reverses suffered by the ruling Congress party in provincial Assembly elections (in Karnataka) are also expected to underpin the government's willingness to take drastic measures," it said.

IOC, BPCL and HPCL, at present, are losing Rs 16.34 a litre on petrol, Rs 23.49 per litre on diesel, Rs 305.90 per LPG cylinder and Rs 28.72 per litre on kerosene.

A one rupee hike in petrol and diesel price would give Rs 1,036 crore and Rs 4,575 crore additional revenues on the two fuels respectively during the remaining 10 months of the fiscal. The Rs 20 hike in LPG prices would yield Rs 1,200-1,300 crore.

Government has used oil bonds to fund the increasing deficit of the oil account.

"At current oil prices, the total bond issuance could be close to USD 25 billion (compared to USD 9 billion for 2007). With another USD 15 billion likely for food and fertiliser subsidies, the total subsidy bill would be large in the context of overall GDP (4 per cent of GDP)," it said.

Price caps and subsidies distort demand by boosting consumption for oil in markets with price caps by keeping the price signal away from the consumer and skewing demand growth in favour of products with price caps.

"In the US, for example, high prices are forcing a decline in miles driven," Credit Suisse said. "Demand outside of China, India and the Middle East decline in first quarter of 2008, and that trend is likely to accelerate through the year as high oil prices take their toll."

Power shortages and inexpensive diesel in India has pushed up demand for diesel generating sets. In addition, with the gap between fuel oil and diesel narrowing, there is now enough incentive for local fuel oil users to use diesel - the small premium for diesel is compensated for by lower maintenance costs, given the higher quality of the fuel.

"Oil subsidies have essentially meant that domestic prices in China and India have remained largely unchanged in a period when domestic income growth has been strong," Credit Suisse said.

Falling oil as a percentage of disposal income in these markets is in direct contrast to the US, where oil as a percentage of disposal income is up to nearly 4.5 per cent -- the same level in 1979. This artificially inflates both fleet growth and the mileage driven by the fleet.

Globally, oil demand is falling across most free pricing regime, with price-capped regions like India and China contributing inordinately to growth.

"Within India and China, demand for products with free pricing (naphtha and fuel oil) has slowed dramatically, and even declined. Paradoxically, efforts to shield customers from the oil shock could be sending oil prices higher," Credit Suisse said.
At 11.05 inflation at 13-yr high, poses big challenge for govt
Friday June 20 2008 14:37 IST PTI
NEW DELHI: Inflation on Friday shot up to a 13-year high of 11.05 per cent fuelled by rise in prices of petrol, diesel and cooking gas, giving no relief to the government from the spiralling prices in an election year.

The rise in petrol, diesel and cooking gas prices announced by the government on June 4 put the pressure on price line pushing the inflation by week ending June 7, up from 8.75 per cent in the preceding week.

Within minutes of the release of the government data, sensitive BSE index of stock markets tanked about 350 points, reflecting the nervousness of the investors about the efficacy of the measures being taken by the finance ministry and the Reserve Bank of India.

Besides fuel prices, rise in prices of food products particularly edible oil and manufactured goods added to the pressure on price line and woes of the government.

Previous high inflation of 11.11 per cent was witnessed on May 6, 1995. Leading economists and analysts predicted that price pressures would prompt the reserve bank of India to further tighten the monetary policy, possibly by making short term lending to banks costlier.

This could further lead to increase in interest rates for cars, homes and consumer finance, economists said and feared that present situation could also force a hike in lending rates for the industry and many banks are already contemplating hiking the Prime lending rate.

“The high inflation may force the RBI to increase the repo rate (short term lending rate to banks) by up to half a per cent,” principal economist of rating agency Crisil D K Joshi told PTI and added that unless fuel prices are controlled the prices would be a major challenge.

During the week under consideration, the fuel index rose by 7.8 per cent on account of “higher prices of diesel (21 per cent), LPG (20 per cent), Naptha (17 per cent) furnace oil (15 per cent), ATF (14 per cent), petrol (11 per cent), high speed diesel (10 per cent) and bitumen (7 per cent), a government release said.

Though food index declined by 1.1 per cent due to lower prices of fruits and vegetables and coarse grains, prices of fish, spices, maize and gram moved up by about 1 per cent, it said.

There was almost an all round increase in edible oil prices led by sunflower oil that became costlier by 10 per cent, followed by groundnut and cotton seed oil (three per cent), imported edible oil, vanaspati and soyabean oil by two per cent each.

Commenting on rising prices BJP leader and economist Kirit Somaiya said, “Congress has become alternate to 'mahangai' that is inflation. It is double digit after 13 years.

“The Congress government led by Manmohan Singh is equalising the inflation of the previous Congress government of 1991-95,” he said.

According to the index, iron and steel sector witnessed a hefty price increase during the week. While the price of steel soared by 14 per cent, pig and foundry iron became costlier by 11 per cent.

The price of bar and rounds rose by 9 per cent followed by steel sheets (4 per cent) and pipes and tubes (2 per cent).

The index of the textile products, according to the data also grew by 0.1 per cent on account of higher prices of cloth, sacking bags and woollens. Among the manufactured products category, the prices of ceiling fans during the week went up by 6 per cent, as regards the chemical products, the index rose by 0.2 per cent due to rising prices of all kinds of acids, caustic soda and blank cassettes.

However, in the non-metallic minerals products category, the prices of cement declined marginally.
World population to hit 7 billion in 2012

WASHINGTON (AP) - The world's population will reach 7 billion in 2012, even as the global community struggles to satisfy its appetite for natural resources, according to a new government projection.

There are 6.7 billion people in the world today. The United States ranks third, with 304 million, behind China and India, according to projections released Thursday by the Census Bureau.

The world's population surpassed 6 billion in 1999, meaning it will take only 13 years to add a billion people.

By comparison, the number of people didn't reach 1 billion until 1800, said Carl Haub, a demographer at the Population Reference Bureau. It didn't reach 2 billion until 130 years later.

"You can easily see the effect of rapid population growth in developing countries," Haub said.

Haub said that medical and nutritional advances in developing countries led to a population explosion following World War II. Cultural changes are slowly catching up, with more women in developing countries going to school and joining the work force.

That is slowing the growth rate, though it is still high in many countries.

The global population is growing by about 1.2 percent per year. The Census Bureau projects the growth rate will decline to 0.5 percent by 2050.

By then, India will have surpassed China as the most populous country.

The Census Bureau updates projections each year on a variety of global demographic trends, including fertility and mortality rates and life expectancy. U.S. life expectancy has surpassed 78 years for the first time, the National Center for Health Statistics announced last week.

The new Census report comes amid record high oil and gasoline prices, fueled in part by growing demand from expanding economies in China and India.

There is no consensus on how many people the Earth can sustain, said William Frey, a demographer at the Brookings Institution, a Washington think tank. He said it depends on how well people manage the Earth's resources.

Today, industrialized nations use a disproportionate share of oil and other resources, while developing countries are fueling population growth.

There are countries in Africa, Asia and the Middle East where the average woman has more than six children in her lifetime. In Mali and Niger, two African nations, women average more than seven children.

"There's still a long way to go in the developing world," Frey said. "A lot of it does have to do with the education of women and the movement of women into the labor force."

In the U.S., women have an average of about two children, which essentially replaces the population. Much of the U.S. population growth comes from immigration.
What is inflation and what causes it?

The inflation rate (WPI) for the week ended February 3 was 6.73 percent, the highest in two years. This gave rise to a lot of talk about why the rate was going up. The RBI increased the Cash Reserve Ratio (CRR) by 50 basis points and had previously increased the repo rate (the rate at which the RBI lends money to banks). Everyone has `inflation' on their lips but it is worth looking at what exactly inflation is, and how it arises.

Inflation pared down to the essentials means a rise in an index consisting of many goods that have weights attached to them. The index always has a base year. If a particular item has a higher weight and its price rises, it will have a greater effect on the inflation rate. At the end of the day it depends on how much weight a particular item is assigned. Most countries use a consumer price index (CPI) while India has a wholesale price index (WPI).

As their names suggest, the CPI pertains to a set of items that a consumer consumes while the WPI is a basket particular to the wholesale market. Therefore, if the inflation for a particular week is, say, 10 per cent, it means the index is 10 per cent higher than it was the same week the previous year. Then there is core-inflation, which means the inflation rate without taking into account food and fuel. Some say both need to be taken out because of their volatility, while some argue that both items cannot be taken out because a consumer does pay for the rise in their prices. The people arguing for the latter do have a point.

Milton Friedman once said: "Inflation is always and everywhere a monetary phenomenon." What exactly does that mean? It essentially means that inflation is always caused because of too much money in the system. In other words, inflation in a country is always caused because the supply of money is much greater than the demand for it. However, Prof Friedman later changed that to: "Substantial inflation is always and everywhere a monetary phenomenon," meaning that hyperinflation (a monthly inflation rate of 50 per cent or more) is caused because of too much money in the system and is usually the result of the central bank printing too much money to finance government operations.

Therefore, one needs to ask what causes the milder type of inflation, such as what India is experiencing. Two different types of inflation are generally associated with this. They are:

Demand-pull inflation: This is basically when the aggregate demand in an economy exceeds the aggregate supply. It is also defined as `too much money chasing too few goods'. Bare-boned, it means that a country is capable of producing only 100 items but the demand is for 105 items.

It's a very simple demand-supply issue. The more demand there is, the costlier it becomes. Much the same as the way real estate in the country is rising.

Cost-push inflation: This is caused when there is a supply shock. The best example to describe cost-push inflation is the oil shock in the 1970s. When OPEC was formed, it squeezed the supply of oil and this caused oil prices to rise, contributing to higher inflation. This is similar to what has happened recently when the oil price hike increased inflation in many a country.

However, whether you believe that inflation can be caused by `cost-push factors,' it depends on whether you're a Keynesian or a Monetarist (Prof Friedman, et al). If you are the former, you would believe in the above two reasons; but, if you're a monetarist, you would believe that only money supply matters.

The Monetarists believe that if the central bank keeps the money supply constant, then increases in the price of a Good A will reduce the money available for other goods.

Therefore, the price of the other goods will fall and offset the price increase of Good A.

However, leaving that said aside, what is causing inflation in India? The WPI consists of 435 items and has three broad categories. They are Primary Articles (weight of 22.0253), Fuel, Power, Light, and Lubricants (weight of 14.2262) and Manufactured Products (weight of 63.7485). The base year of the WPI is 1993-94. The base year usually chosen is one where there has been fairly less volatility. So now let's look at what caused the inflation.

If one looks at the three broad categories, primary articles rose by 12.26 per cent, fuel increased 2.33 per cent and manufactured products 6.37 per cent. However, if one takes the different weights into account, a clearer picture emerges. Because of the weights, of the 6.73 per cent of inflation, manufactured goods contributed 4.29 per cent while primary goods contributed 1.48 per cent, and Fuel, Power, etc., contributed to 0.95 per cent.

It has been reported that the manufacturing capacity in India is running around 95 per cent, which usually means it is running at full capacity. Therefore, when the price of manufactured products is increasing, it means that demand is usually higher than supply and that is a clear case of demand-pull inflation.

On the primary goods front, which consists of fruits, vegetables, food-grains. Etc., it is not that straight-forward. It has certainly been all over the news that the prices of fruits and vegetables are increasing and a trip to the supermarket or local grocery shop will testify to that.

Why the price rise in primary goods is not straight-forward is that while on the one hand, it is a clear case of demand-pull inflation, on the other, it is also a bit of a supply shock when one considers the fact that there is an abnormally high percentage of fruits and vegetables that goes to waste because of the lack of cold-storage facilities. Some estimates say 50 per cent of produce goes to waste and that is a conservative number. The increase in fuel is easy to understand.
I reproduce the email from my friend Dr.Kalyan. As I agree with this view i am sharing this with the forum.

The way to fight inflation: Throw the UPA Govt. out.

I don't think this should be a moment of silence for the opposition allowing the UPA government to fall apart by its own contradictions and the state of rot created by every minister engaging in a secular loot of the nation's wealth and resources. I think this is a decisive moment when every person concerned about the impoverishment of rural India should raise the cry of revolt and ask for the immediate dismissal of the UPA Government with or without Karats.

Inflation or price rise is simply a monetary phenomenon. Inflation is directly related to the money supply in the economy.

With the influx of fraudulent participatory notes (P-Notes), the rich Indians have become richer at the cost of poor people of the country.

With the influx of P-Notes, too much money has been brought in (whitening the black money and bringing in terrorist money and money-launders' money) to chase too few stocks of scores of shares which constitute the BSE Sensex. Sensex shot up from 2,900 in 2003 to 27,000 in 2007. Too much money supply has devastated the financial system, enriching the rich and those who should be tried for economic treason.

With such bloated moneys in the pockets of the rich, the whole-sale price index has shot up since too much money has been chasing the almost same quantum of goods and services produced in the Indian market.

Wholesale Price Index consists of 435 items and has three broad categories. They are Primary Articles (weight of 22.0253), Fuel, Power, Light, and Lubricants (weight of 14.2262) and Manufactured Products (weight of 63.7485).
Clearly manufactured goods are the dominant component of the inflation index. The present level of inflation of about 15% to the consumer is caused by the decline in manufactures. Coupled with too much money supply chasing too few manufactured goods, the inflation has reached a galloping state.

The three persons responsible for this state of affairs are: P.Chidambaram, Manmohan Singh and Sonia Gandhi who have introduced bogus non-productive, expenditure schemes such as National Rural Employment Guarantee Scheme, Agriculture Loan Waiver Scheme, P-Notes devastating the stock markets; these schemes have created more money in the hands of consumers with little increase (in fact, decline) in levels of production and services. Sonia is misleading the nation by blaming non-Congress state governments, Manmohan the super-economic-czar is acquiescing in the rot by keeping quiet, P-C is clearly misleading the nation by citing global food prices or global fuel prices without owning up his responsibility in increasing the money supplies and throttling the decision-making by RBI to rein in inflation in the financial system.

The Current Account deficit in the current year's budget (excess of expenditures over receipts) is a cause for serious concern. The false figures of balance of payments surplus with surplus dollars in the BOP account will get wiped out when the FIIs pull out their participatory-note monies and bring the stock market tumbing down. These BOP amounts can NOT offset the current account deficit. Only one measure will; rein in the unproductive expenditures without misleading the people with announcements of cancellation of foreign travel jaunts by a few ministers.

Don't wait for elections. RBI should intervene forcefully, shaking off the tentacles of the Finance Ministry. The President should act to dismiss the rotten UPA Government forthwith, and order immediate elections, nuke deal will be a bonus for the energy industry provided it is put to good use by creating 100 nuke plants in the next 10 years on a fast track.

On oil - I saw 1 barrel crude is app 150 litres after refining lets assume one get 100 litres of petrol. At current rate 1 barrel = 135 us$ so roughly at exchange rate 40 rs it works to 5k rupees meaning a litre cost 54.00 Rs .

Is my figure works correct?

If it is correct then, even BJP or any other parties can't do much. What you guys say?

i too agree with you re dr. kalyan's analysis of the management of economic affairs of the state.

with the calibre of our current prez, not sure, if measures advocated like dismissal of the government will ever happen.

let us see.

the way the political scene is moving by the day, we might have elections very soon.

maybe there will be opportunities for changes then. hopefully for the better.

thank you.

A barrel of oil contains 159 liters and so a liter should cost Rs.34.00. However the price of a gallon of oil is quoted at the pump head which means you have to add the cost of transportation to the refinery, the cost of refining, again cost of storage and transportation to the primary distributor and the cost of storage and transportation of the retailer. Add to these the profit of every middlemen and above all the tax levied at every level from the primary source through to the consumer. Usually added also surcharge for road building and maintenance etc. All these would perhaps more than double the price of Rs.34.00. However when it is subsidized to Rs.52.00 you have to think who is benefitting from the subsidy. 99% of Indians don't have a car or even a motor bike. Now go figure who would benefit especially when more gas you use greater is your benefit from the subsidy.

Do you know that there is already the talk that oil price would hit $500.00 in two or three years?

Do the capitalist countries have the ability to adjust to the price rise without or even with alternate source of energy? What will happen to the underdeveloped economies world over? Do you think there would be a peaceful formula among nations to share this scarce resource? Also how are they going to carry on when oil as an energy source is exhausted in the next few decades?

These are some of many questions but of few or no answers.
At last report, there are 2.5 people in India out of 100 who own cars (let alone any motor cycles and or scooters). So, obviously the 99% non ownership of such vehicles in India is not correct.

The oil price hike is obviously an emotional issue for a common person in India, because it hikes all other prices connected to transportation, some folks are using this issue to divert attention. This is not a political issue, it is an economic one.

Sri Ramaa,

What is the ratio from crude to refined?

The figure for 1 barrel crude - 5+k INR. Of which refined petrol is the main product, most of the other is Tar. Ignoring all those by products value, you get 50.00+INR for a litre of refined petrol. Factoring all the costs you listed it would be around the region 60-65 INR

I'm questioning the credibility of some opposition parties, who says they can cut customs duty to keep the price of oil in control. Do they make sense?

Wave energy is worth investing.

Solar panels yields roughly 1kwh-1.5 kwh / m2 or 10ft2(app) .For a home of 4 living in 800ft2 we need roughly 100-150 units w/o fridge and air-con. if we can utilise the roof space solar is a good alternative for mass. the demand can bring the costs of solar panels down.

I know some people using big fans as source of Wind energy in homes. this is another alternative. it cost some 1 lac INR.

For locomotion it is high time other technologies evolve to replace fuel.


Don't trust politicians! They don't talk economics for they don't know it! They talk politics which is bs! The price of gas sold on the street has so many variables embedded in it that in a market economy driven by demand and supply the price cannot be fixed. Any fixing is only at the behest of pressure groups which are bound to benefit by such price fixing. In vast majority of India the ratio between a motorized vehicle and population would exceed more than 1:10,000 and it doesn't matter to them whether price is fixed or otherwise. If price of cooking gas is subsidized the beneficiaries are greater than those who use petrol. That population using cooking gas is far far greater in the urban areas than those in the rural areas.
வரலாறு காணாத விலை உயர்வு.


நியூயார்க் ஜூன்-27. (டிஎன்எஸ்) சர்வதேச சந்தையில் கச்சா எண்ணெய் விலை வரலாறு காணாத அளவிற்கு உயர்ந்துவிட்டதை யடுத்து பெட்ரோல் மற்றும் டீசல் விலைகளும் உயரக்கூடும் என்ற அச்சம் ஏற்பட்டுள்ளது.

சர்வதேச சந்தையில் கச்சா எண்ணெய் விலை பீப்பாய் ஒன்றுக்கு 140 டாலர்களாக உயர்ந்துவிட்டது. இதனையடுத்து பெட்ரோல், டீசல் மற்றும் சமையல் எரி வாயு உள்ளிட்ட அனைத்துப் பொருட்களின் விந லகளும் உயர்ந்துவிடும் அபாயம் உள்ளதாக இந்தியா உள்ளிட்ட நாடு கள் அச்சமடைந்துள்ளன.

ஏற்கனவே உலக சந்தையில் கச்சா எண்ணெய் விலை உயர்வால் விற்பனை விலையில் பெட்ரோல் 5 ரூபாயும் டீஸல் 3 ரூபாயும் சமையல் எரிவாயு 50 ரூபாயும் அதிகரித்தன.மேலும் எண்ணெய் உற்பத்தியானது, தேவை உயர்ந்த அளவிற்கு அதிகரிக்கப்படாததால் கச்சா எண்ணெய் விலை ஏகமாக எகிறிவருகிறது.

நியூயார்க் வர்த்தக சந்தையில் கச்சா எண்ணெய் விலை 140.39 டாலர் களாக அதிகரித்துள்ளது. இந்த விலை உயர்வு 150 டாலர்களையும் தாண்டக்கூடும் என்று பொருளாதார நிபுணர்கள் கருதுகின்றனர். இவ் விலை உயர்வின் விளைவு பங்குச் சந்தையிலும் எதிரொலித்தது. மும்பை பங்கு வர்த்தகம் ஆரம்பமான நிலையிலேயே 500 புள்ளிகள் சரிந்தன, தேசிய பங்குச் சந்தையான நிப்டியும் 150 புள்ளிகள் சரிவைக் கண்டுள்ளது. (டிஎன்எஸ்)
Riding a roller coaster
Friday June 27 2008 09:27 IST Bharat Jhunjhunwala
The Reserve Bank of India has again increased the Cash Reserve Ratio by 0.50 per cent. The CRR has been raised eight times in the last two years. Cash Reserve Ratio determines the amount of money commercial banks have to deposit with the Reserve Bank in the form of security.

Raising the CRR forces the banks to put more money with the RBI and leaves them with less cash to lend. The idea is to suck out liquidity from the banking system and reduce the pace of growth in the economy. Fewer home and car loans will be given, leading to lower demand for cement and steel. Businesses will set up fewer factories and stock fewer goods in the absence of loans.These measures are likely to reduce demand both for consumption and production.

Banks will give out fewer loans for purchase of cars, leading to lower demand for cars. At the same time, they will give fewer loans to automobile manufacturers leading to production of fewer cars. Fire cracker manufacturers of Sivakasi, for example, start producing crackers for Diwali many months early. They hypothecate the goods to the banks and avail themselves of loans against stocks kept in their godowns. They will be able to hold fewer stocks and also the purchasers will buy fewer crackers due to paucity of loans. Thus balance will be reestablished in the economy between supply and demand at a lower level.

The Reserve Bank is not likely to succeed in controlling prices by these measures, however. These measures deal only with the domestic sources of demand in the economy. The main reason for increase in prices at present is not domestic but international. Foreign Direct Investment (FDI) in the first three months of 2008 has been at a record level of about $10 billion. A report by Bloomberg quotes the World Bank to the effect that private investment in developing countries surged by $269 billion last year to a record $1.03 trillion, with the bulk of the money going to the BRIC countries. BRIC refers to Brazil, Russia, India and China — the four large developing countries that are leading the world economy at present. I suspect this surge in capital flows to the developing countries is due to flow of petrodollars.

The oil-exporting Arab countries are receiving huge amounts from sale of oil. They are partly using the money to build in their countries artificial islands, water desalination plants and highways. But a good part of it is invested abroad.

Previously these ‘petrodollars’ were invested in the US. That is no longer profitable due to the decline of the US dollar. In contrast, currencies of BRIC countries are appreciating. Hence the oil-exporting countries may be investing a part of their surplus in India. These inflows come on top of External Commercial Borrowings by Indian companies. It is profitable for them to borrow dollars because the decline in the value of that currency reduces the burden. This appears to be the main reason for the increase in prices. Companies are busy setting up new factories funded by Foreign Direct Investors, inflow of petrodollars and external commercial borrowings and areleading to increase in demand for men and materials.

The Reserve Bank has increased the Cash Reserve Ratio to partly neutralise the impact of these inflows. Think of the Indian economy as a pressure cooker with two taps. The Reserve Bank has closed the tap of domestic lending to make space for the monies coming in from FDI and ECB routes. This policy would have been successful if the inflows from FDI and ECB routes had remained at present rates. In that case less domestic lending by commercial banks would have lowered the total inflow into the pressure cooker and reduced the pressure. But greater inflows of foreign capital are taking place.

Foreign banks are often involved in arbitrage. They borrow monies in countries with low rates of interest like Japan and lend the same in countries at high rates of interest like India. The interest rates in Japan, for example, are about 1-2 per cent. Let us say foreign banks are lending in India at 10 per cent at present. Now they will be able to lend at 11 per cent because interest rates will move upwards due to less liquidity. This will make it more attractive for them to borrow larger amounts in Japan and lend in India.

The government is continually increasing the caps on limits by Foreign Direct Investors in various sectors. This will provide encouragement to higher inflow of FDI. Thus, the reduction in demand due to reduced domestic lending will, in my opinion, be more than nullified by increased inflow of foreign capital.

The Reserve Bank has expressed confidence that the increase in Cash Reserve Ratio will help contain the price rise and also maintain the Indian economy at the high growth rate of 8 per cent. My assessment is that the growth rate will indeed be maintained as claimed by the Reserve Bank.

Reduced lending by domestic banks will not hit the rate of growth of the economy because this will be more than made up by increased inflows by the FDI and ECB route. But the price rise is not likely to becontained. Reduction in demand due to less domestic lending will be nullified by increase in demand by the FDI and ECB routes. Thus we should expect continuation of the present scenario of high rates of price rise and growth rates.

These policies will affect players in different ways. Foreign Direct Investors and foreign banks engaged in arbitrage will stand to gain due to higher levels of activity. Large Indian corporate houses will also be affected only marginally. They have access to External Commercial Borrowings. They will compensate for reduced availability of funds from domestic banks by borrowing more through the ECB route.

The smaller Indian businesses will be hit most. They will have less access to bank lending and face the brunt of the present policies. In conclusion, the Reserve Bank will not be successful in containing prices though present growth rates are likely to be sustained. These policies will impact domestic small businesses negatively while providing more free play to foreign players. A better policy would be to restrict foreign capital flows and keep the Cash Reserve Ratio low. The challenge lies in controlling inflation without hurting domestic business.

Billionaires turn millionaires after market crash
Kishor Kadam & Sanat Vallikappen
Saturday, June 28, 2008 03:18 IST
MUMBAI: Who wouldn’t want to be a millionaire? Well, here’s news. A host of India’s ultra-affluent individuals may actually be losing sleep over becoming millionaires, having already enjoyed the status of billionaires when the markets had taken personal fortunes to dizzying heights.
After Friday’s Sensex fall of 619 points, which made the index close at 13,802.22, or 33.8% below its January high, there were 23 such reluctant millionaires.

That shrinks the list of India’s billionaires as on date to 39, a far stretch from the 62 who enjoyed such status on January 8, 2008, when the Sensex had peaked at 20,873 points.

So who are these billionaires-turned-millionaires?

RP Goenka & family, who run companies such as RPG Life Sciences, Ceat, KEC International and Zensar Technologies, have lost $890 million since January, with their personal net worth now coming in just shy of the billion-dollar mark at $980 million.

Others include Birla patriarchs KK Birla and BK Birla, Mukesh Ambani’s right hand man Anand Jain, commodities king Jignesh Shah, Jet Airways boss Naresh Goyal, Bombay Dyeing’s Nusli Wadia, retailer Kishore Biyani, and stock broker Nimesh Kampani.

Apart from the bear onslaught on stocks of companies they promote, these ex-billionaires have also had to contend with a weaker rupee. Since January 8, 2008, the rupee has lost 8.89%, further exacerbating wealth erosion in terms of dollars.

The relentless bear attack shows no signs of petering out, what with record-high oil prices, high inflation and a non-conducive global macroeconomic environment adding fuel to the fire. That’s only set to swell the ranks of these reluctant millionaires.

Among those who are still billionaires, Reliance ADAG’s Anil Ambani and DLF’s KP Singh were the worst-hit as far as rate of wealth erosion was concerned.

Their personal fortunes dwindled at the rate of $12,000 per trading second each since January 8, 2008. While the former’s total net worth stands at $25 billion now, the latter is worth $15 billion. Mukesh Ambani, the richest resident Indian, also lost at the rate of $8,000 per trading second, his total personal wealth as on date coming in at $38 billion.
Banks hike deposit rates
Joel Rebello
Saturday, June 28, 2008 03:23 IST

MUMBAI: After hiking lending rates for the last couple of days, banks have now turned their attention to hiking rates on their fixed deposit schemes.
State Bank of India, the country’s largest bank, hiked its fixed deposit rates by 0.50% to 0.75% on Friday. Following this hike, new fixed deposits maturing between 181 days to less than one year will earn 8% interest compared to the existing 7.50%.

Also, FDs maturing in one year to less than 3 years will earn 9.50% interest compared to 8.75% previously, while senior citizens will earn 10% interest. The new rates are effective Monday.

North India-based public sector giant Punjab National Bank has also hiked deposit rates by up to 0.50% for various maturities. The new rates would be effective from July 1.

With two of the largest public sector banks hiking deposit rates, other banks will also have to hike rates to stay competitive.

Union Bank of India increased its interest rates on deposits by 0.25% to 1% on Thursday.

Among the private sector banks, HDFC Bank has also raised deposit rates effective June 20. For deposits maturing in one year 17 days to 2-years, customers get 8.25% interest at HDFC Bank.

ICICI Bank is the only major bank which has neither changed its deposit or lending rates. However, ICICI Bank officials indicated that the change may happen soon.

“Generally both deposit rates as well as lending rates are going up. But we are watching the situation on day-to-day basis,” said Chanda Kochhar, joint managing director and chief financial officer at ICICI Bank.
Another ICICI Bank official said the bank may decide on hiking rates as early as Monday. ICICI currently offer
Police deployed at petrol pumps in Chennai
Tuesday July 1 2008 00:50 IST PTI
CHENNAI: Police personnel were on Monday deployed at various petrol stations to regulate thousands of motorists who thronged the outlets fearing acute shortage of fuel in the city, reeling under limited fuel supplies for the past few days.

However, the oil companies have said it was only a temporary problem caused by 'supply dislocation' and assured that the situation would be normalised soon.

With most of the petrol stations either selling branded petrol or displaying no stock boards for the fourth straight day, serpentine queues were seen in front of them across the city. The likely impact of the indefinite lorry strike called by the All India Motor Transport Congress from July 2 has further increased the anxiety of the motorists.

Tamil Nadu Petroleum Dealers' Association President M Kannan said that the long queues were due to limited quantity of fuel supplied by some of the public sector oil companies.

"Though some companies have supplied fuel today, about 50 per cent of petrol bunks have gone dry," Kannan said, adding the petrol and diesel supplied this morning was not even sufficient for the day.

He said the proposed lorry strike would further complicate the issue.

State-level coordinator of oil industry, Tamil Nadu and Puducherry and the Executive Director, Indian Oil Corporation Ltd, State Office, V K Jayachandran said the problem was only temporary and due to 'a dislocation in diesel supply' to the Bharat Petroleum Corporation Limited (BPCL).
Millions of Indian truckers to strike from today
Wednesday July 2 2008 00:44 IST Reuters
NEW DELHI: Millions of truckers will go on strike across India from Wednesday to protest against higher taxes and rising fuel bills as oil firms force them to buy costlier branded fuel, a union leader said.

The strike is likely to disrupt goods supplies across the country at just the wrong time for India's embattled coalition government.

It is struggling to turn around inflation at its highest in 13 years, while its leftist allies are threatening to withdraw support over a controversial nuclear deal with the United States, raising the prospect of a snap election.

"No meeting is planned with the government and we are going ahead with the strike to save our business," said Charan Singh Lohara, president of the All India Motor Transport Congress, which represents both large and small truck operations.

The strike could slow industrial output and hurt diesel sales.

A similar week-long strike in August 2004 pulled monthly diesel sales down 9.3 percent from a year earlier, while annual growth in industrial output slowed to 7.9 percent from 8.4 percent in the previous month because of disrupted shipments.

Lohara said the majority of the nearly 4 million trucks which would stay off the road were long-distance cargo carriers, consuming between 75 and 80 litres of diesel a day.

He said oil firms have been forcing commercial vehicles to meet half of their fuel consumption through costlier branded diesel for the last ten days.

G.C. Daga, director of marketing at Indian Oil Corp, the country's largest fuel retailer, said sales of the cheaper fuel were still freely available.

"We are selling normal diesel to truckers at our retail outlets on highways, everywhere it is available ... only in cities are we encouraging people to buy branded fuel," he said.

India caps the prices of normal petrol and diesel sold through fuel stations but no such price control exists for branded fuels, which are still far cheaper than if prices were market-determined.

The Indian government raised the retail price of petrol and diesel by about 10 percent early this month but most states cut local taxes to soften the impact on consumers.

"Earlier the price gap (between branded and normal diesel) was 50 paise (1.2 cents) a litre, but now this has gone up to as much as 2.25 Indian rupees (5.1 cents) a litre. To save our business, we will take our vehicles off the roads from tomorrow," Lohara said.

He said union members would also be protesting against hikes in road tolls and transport taxes.

Daga added the price gap between branded and normal fuels had widened after the government cut the excise duty on the latter at the same time as it raised retail fuel prices on June 4.
Talk with govt fails

Wed, 02 Jul, 2008,03:53 PM​
. Expect the unexpected, they say. Perhaps proving this, prices of vegetables reached a new low today at a time when everyone was expecting a steep rise owing to the lorry strike that started from midnight last.

The reason was simple— Aggressive buying of vegetables by public, and the vendors, fearing a possible shortage in vegetables and fruits following the indefinite strike call given by the truckers, had also dumped the market.

Chandran, president, Koyambedu vegetable market told News Today that prices of all vegetables were down when compared to Tuesday. Rates of carrot, cabbage, beetroot are literally down.
On Tuesday, one kilogram of carrot cost Rs 20, but on Wednesday it was Rs 16.

‘As we don’t have enough storage facility to preserve them, we are selling them at lower rates due to their perishable nature. But prices of onion and tomatoes are same as yesterday and there will be no change in the prices even in the next couple of days.’

However, he said, things would become worse if the truck owners continued their protest. ‘If the strike goes on, the quantity of vegetables coming from other States will become less and there will be a hike in the price.’

Meanwhile, the government is taking steps to ensure smooth supply of essential commodities during the lorry strike.

Nagapattinam District Collector M Jayaraman has announced that armed policemen would be deployed for providing security to the vehicles carrying essential commodities, such as milk, vegetables, LPG, petrol and diesel.

The Collector warned that severe action would be taken against those who attempt to disrupt the movement of the vehicles carrying essential commodities.

Meanwhile, in Vellore, Minister of State for Railways R Velu on Tuesday said his Ministry would be willing to consider requests for using trains to transport commodities in the wake of the lorry strike.

Apart from vegetables and goods transportation, the movement of all-purpose vans and school carriers were also hit in Chennai. Many school van operators chose to stay off road in a show of solidarity with the strikers. Many school students, who had to use to alternative mode of transport yesterday due to the fuel shortage, had to endure the same predicament today too.


Truckers across the country stopped ferrying goods today, as part of an indefinite strike to push for abolishment of toll tax and rationalisation of duty on diesel.

As a result, about 50 lakh lorries all over India (50,000 in Tamilnadu alone) kept off the roads.

The strike that started in the early hours of today has been called by the All India Motor Transport Congress (AIMTC), which claims the support of all State transporters’ association with a combined fleet size of 48,00,000 trucks.

Talks this morning between the apex body of transporters and the Union Highways, Road Transport Minister T R Baalu to thrash out a solution collapsed.

‘We will continue with the indefinite strike,’ AIMTC President Charan Singh Lohara told reporters after the meeting.

Yesterday, he had said that truckers want the advalorem duty on diesel to be replaced with a fixed rate of duty on per litre of the fuel.

AIMTC has alleged that the government is encashing the international crisis on crude oil prices many-fold and forcing the truckers to buy premium diesel at higher and unregulated prices.


The Central Board of Excise and Customs is considering to provide relief to transporters, who have gone on a strike from today.

Source: News Today
Fuel crisis set to go on


Wed, 02 Jul, 2008,10:51 AM​
. The fuel crisis in Chennai is set to continue for more days as the arrival of oil carriers at Chennai port is being delayed.

Chennai port is the landing point for fuel distribution across Tamil Nadu and Karnataka.

Government agencies are yet to explain the situation of sudden scarcity.

. The scarcity is attributed to the delay in the arrival of a cargo carrying 15,000 tonnes of diesel from Lebanon, said sources in BPCL.

The consignment that should have reached Chennai by June 20, is expected to arrive only on July 6 due to specification errors by the Lebanese agency.

Temporary arrangements to satiate the demand would be taken care by a BPCL vessel, Sampurna Swaraj, which is expected to arrive at Chennai port on Wednesday at 10 am carrying 12,000 tonnes of high speed (HSD) oil.

Meanwhile, IOC and HPCL have stepped up supplies from their depots in the city.
Tonnes of grains damaged in godowns

Wed, 02 Jul, 2008,11:24 AM​
. The damages which could have fed over one crore hungry people for a year were suffered despite the FCI spending Rs 242 crore while trying to prevent any loss of food grains during storage.

Ironically another 2.59 crore was spent just to dispose off the rotten food grains.
. These startling facts came in reply to a Right toInformation (RTI) application filed by a Delhi resident.

FCI informed that 10 lakh tonnes of food grain was damaged in the godowns of government owned agency which is responsible for procurement and distribution of food grains across the country.

It comes at a time when a United Nations report has claimed that 63 per cent children in India go to bed without any food.

The FCI informed that 1.83 lakh tonnes of wheat, 3.95 lakh tonnes of rice, 22 thousand tonnes of paddy and 110 tonnes of maize were damaged between 1997 to 2007.

The FCI said in the northern region -- UP, Uttarakhand, Haryana, Jammu and Kashmir, Punjab, Rajasthan, Himachal Pradesh and Delhi -- the damage incurred was seven lakh tonnes and the PSU spent Rs 87.15 crore to prevent the loss besides spending over Rs 60 lakh to dispose off the damaged food

'Keeping in view the amount of money spent by the FCI for preservation of food grains in its go-down, the quantum of damage is huge. Is it not a national shame?' the RTI applicant Dev Ashish Bhattacharya said.

Similarly in eastern India -- Assam, Nagaland,Manipur, Orissa, Bihar, Jharkhand and West Bengal -- the damage incurred was 1.5 tonnes of food grains while the FCI spent Rs 122 crore to prevent it from rotting.

But the damaged lot was disposed off after spending another Rs 1.65 crore.

In southern region -- Andhra Pradesh, Tamil Nadu, Karnataka and Kerala-- the damage incurred was 43,069.023 tonnes despite spending Rs 25 crore.

This damaged food grain was disposed off after spending another Rs 34,867.

While damage in Maharashtra and Gujarat mounted to 73,814 tonnes, the FCI spent Rs 2.78 crore to prevent the loss.

However, this lot was also disposed off later at a cost of Rs 24 lakh.

In Madhya Pradesh and Chhattisgarh, the damage incurred was 23,323.57 tonnes of food grains and the amount spent to stop the damage was Rs 5.5 crore.

The story was no different from other go-downs as the FCI spent Rs 10.64 lakh for disposing damaged food grains.

'The data given by FCI seems manipulated. In case of Jharkhand, the food grain damage is 3,699 tonnes which is comparatively low than other states.

But the money spent to dispose off the damage is Rs 1.4 crore, which is high when compared to the other states,' Dev Ashish said.


Would you want to be caught in this traffic jam? A typical evening rush hour on one of the roads in New Delhi.
Sri Saab !

Could you consider now - an effective inter-state immigration policy to control and administer populations.

Looks like a ten lane road still it chokes.

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