India’s Food Inflation Slows to Near 3-Month Low on Harvest
March 03, 2011, 3:59 AM EST
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By Unni Krishnan and Tushar Dhara
March 3 (Bloomberg) -- India’s food inflation slowed to near a three-month low after supplies of fruits and vegetables increased from the winter harvest.
An index measuring wholesale prices of agricultural products including lentils, rice and vegetables rose 10.39 percent in the week ended Feb. 19 from a year earlier, the commerce ministry said in a statement in New Delhi today. The gain is the least since Nov. 27 and compares with an 11.49 percent increase the previous week.
Food inflation still has stayed above 10 percent since December, maintaining pressure on India’s central bank to raise interest rates. Finance Minister Pranab Mukherjee, who said yesterday higher oil prices are a “serious issue,” lowered income tax and stepped up spending in the budget this week to protect citizens from rising costs.
“Inflation will continue to remain the predominant concern for the Reserve Bank of India,” said Rupa Rege Nitsure, a Mumbai-based economist at Bank of Baroda. “They will continue with their tightening stance.”
The Reserve Bank on Jan. 25 raised the benchmark repurchase rate for the seventh time in a year to 6.5 percent and signaled more tightening. It will announce its next monetary policy statement on March 17.
The Bombay Stock Exchange’s Sensitive Index fell 0.2 percent as of 2 p.m. in Mumbai. The yield on the 8.08 percent bond due August 2022, the government’s most-traded debt, dropped two basis points to 8.08 percent. A basis point is 0.01 percentage point. The market was closed yesterday for a public holiday.
Global Food Index
The global food price index, compiled by the United Nations’ Food and Agriculture Organization, surged to a record for a second month in January, driven by higher costs of cereals, dairy and sugar.
Mukherjee plans to increase spending by 13.4 percent to 12.6 trillion rupees ($278.3 billion) for the fiscal year starting April 1.
Even as he reduced the income-tax burden, Mukherjee moved to boost levies in other areas to spur revenue and cut the budget deficit. The finance chief included more services under the tax net including air-conditioned restaurants, hotels, airlines and hospitals, increasing inflationary pressures.
The minister also imposed an excise duty of 10 percent on branded garments and raised the levy on drugs, textiles and medical equipment to 5 percent from 4 percent. Cipla Ltd., an Indian drugmaker, plans to pass on the increase in excise duty on medicines to customers, its Chief Financial Officer S. Radhakrishnan said Feb. 28.
Budget Deficit
Mukherjee is aiming to narrow the budget deficit to 4.6 percent of gross domestic product in the year starting April 1 from 5.1 percent in the previous 12 months. The government will “struggle” to meet the target, Standard & Poor’s Ratings Services said this week, citing growing pressures to provide food and fuel subsidies.
“Uncertainty in the oil price is a serious issue which we shall have to address,” Mukherjee, 75, said in an interview with Bloomberg UTV in New Delhi yesterday. Adjustments to the subsidy bill remain “a conjecture at this point,” he said.
India meets about three-quarters of its annual energy needs from imports, and Mukherjee estimated a 38 percent drop in fuel subsidy costs next year to help lower government borrowing.
Oil traded near the highest in 29 months as fighting in Libya renewed concern that supply disruptions may spread to the Middle East while an unexpected drop in U.S. crude supplies signaled a recovery in demand.
Crude Prices
Crude for April delivery was at $102.29 a barrel, up 6 cents, or 0.1 percent, in electronic trading on the New York Mercantile Exchange at 1:13 p.m. in Singapore. It earlier gained as much as 71 cents to $102.94. Prices are up 27 percent from a year ago.
Higher oil prices and growing consumer demand are adding to inflationary pressures, said Shubhada Rao, chief economist at Yes Bank Ltd. in Mumbai.
India’s services industry grew in February at the fastest pace in seven months, the purchasing managers’ index released by HSBC Group Plc and Markit Economics showed today.
Mobile-phone operators including Bharti Airtel Ltd. added 13.72 million new customers in January, a 2.53 percent from the previous month, a sign of growing demand. Loans extended by lenders, including ICICI Bank Ltd., gained 23.6 percent in the week to Feb. 11, the most in six weeks.
