FE Editorial : Diesel vs inflation
The Financial Express: Dec 18 2012, 01:12 IST
Apart from the headlines of the finance ministry’s mid-year economic analysis (MYEA) lowering its GDP target for FY13 from the budget’s amazing 7.6% estimate to a more sober 5.7-5.9%, there are several interesting points for a larger discussion. On the eve of RBI’s credit policy meeting, apart from talking of the slowing core inflation numbers, the MYEA points to the role of interest rates in cutting corporate profitability—for the manufacturing sector (non-government), it says, interest costs rose from 15.2% of operating profits in Q4FY10 to a whopping 30.3% in Q1FY13. Lower rates further, the unstated argument is, corporate profits will soar, prompting more FII flows, a stronger rupee and hence even more moderation in inflation. The report, though, does caution that not too much should be made of interest rate hikes since the slowing capital formation preceded the hike in policy rates.
The report doesn’t dwell enough on the impact of the government holding excess foodgrain stocks—stocks are 3.13 times what the buffer norms are—though the costs of this are huge. While around 7-10 million tonnes of wheat are stored in the open and likely to rot soon, just exporting this would fetch the government around R20,000 crore at today’s prices. The MYEA does say that the hike in MSPs, though necessary to give farmers remunerative prices, has been a contributor to rising inflation in the country; the mismatch between demand and supply, due to excessive FCI procurement driving out supplies from the market, the report says, has also contributed to
Previous Story Gun Control Next Story Column : Lipstick on a pig
Reader's Comments| Post a Comment
Be the first to comment.
