|
 Prime Minister Narendra Modi, elected in May amid anger over rising
prices, has ordered a crackdown on hoarding to hold down food prices
and set limits on the export of staples, such as onions and
potatoes.
Presenting his first budget on Thursday, Finance Minister Arun
Jaitley vowed to keep the fiscal deficit at 4.1 percent of gross
domestic product in this fiscal year, while allocating more funds to
ease inflationary pressures.
"The monsoon this year appears more unpredictable," he told
lawmakers, adding that the government would take all steps
necessary.
Consumer price inflation <INCPIY=ECI> probably eased to 7.95 percent
last month, down from 8.28 percent in May, while wholesale price
inflation <INWPI=ECI> eased to 5.80 percent, the Reuters poll of
economists found.
The government will release the data on wholesale prices on Monday
around 0230 EST. Consumer price data is due at 0800 EST.
Modi faces his first challenge as soaring prices for basic food
items, such as milk and potatoes, lifted retail food inflation to
9.4 percent in May, driving wholesale inflation to a five-month high
of 6.01 percent.
The government is banking on stocks of food such as rice, wheat and
sugar from recent bumper harvests, but has few ways to cap prices of
fruits and vegetables that drive food inflation.
"The measures may prove to be inadequate in light of the
supply-demand dynamics associated with perishable products, absence
of adequate cold storages and inefficiencies in the domestic supply
chain," said Aditi Nayar, an economist at ICRA, the Indian arm of
rating agency Moody's.
Retail inflation has eased to about 8 percent, after staying in near
double-digit figures for the past two years, the highest among the
BRICS group of emerging economies - Brazil, Russia, India, China and
South Africa.
Economic growth has been stuck below 5 percent for two years - the
longest slowdown in more than a quarter of a century. The economy is
expected to grow slightly above 5 percent in this fiscal year to
March 2015.
In 2009 benchmark New York futures swept to a 30-year high after the
worst drought in nearly four decades forced India, the world's top
sugar consumer, to buy large quantities of the sweetener from top
producer Brazil.
The farm sector accounts for around 14 percent of India's nearly $2
trillion economy, and two-thirds of its population of 1.2 billion
live in rural areas.
[to top of second column] |
Weak investments and industrial performance have hurt economic
growth, but figures on Friday showing that industrial output grew
4.7 percent in May on the year bettered expectations for a rise of
3.8 percent.
Output gained just 0.1 percent in the fiscal year that ended in
March.
RELIEF FAR AWAY?
Weak rainfall since a delayed start to the monsoon season could push
up food prices - further delaying a decision by the Reserve Bank of
India to cut interest rates and ease the flow of credit to the
economy.
"We believe a rate easing cycle is unlikely to commence before the
second half of the current fiscal, keeping interest costs elevated
for the productive sectors," said Nayar of ICRA.
Reserve Bank of India Governor Raghuram Rajan held benchmark
interest rates at 8 percent in the June policy meeting. He has
raised rates three times since taking charge last September. The
next policy review is due on Aug. 2.
On Thursday, Rajan said the central bank was "determined" to make
sure consumer inflation follows a "glide path" lower.
An RBI panel has recommended bringing down consumer price index
(CPI) inflation to around 8 percent by the end of January 2015 and
to 6 percent by the end of the following year.
(The story was refiled to fix garble in dateline)
(Reporting by Manoj Kumar; Editing by Douglas Busvine and Clarence
Fernandez)
[© 2014 Thomson Reuters. All rights
reserved.] Copyright
2014 Reuters. All rights reserved. This material may not be
published, broadcast, rewritten or redistributed. |
