Reliance v/s Arvind Kejriwal

Arvind Kejriwal's latest allegations against Reliance have rather serious implications for the Indian Economy.

The Allegations

Arvind Kejriwal has this time targeted the biggest industrial establishment of India - Reliance Industries Ltd. He has claimed that Mukesh Ambani used his financial clout to manipulate government policies and wrongfully renegotiate the price at which his company Reliance Industries sells gas to the government.He has even alleged that Reliance is infact blackmailing the government to increase the rate by more than 3 times.

He further charged that 2 ministers were moved out of the Oil Ministry for their stand against Reliance's request.

If the allegations are true then below are the Implications - As I see them

• There are ministers who are not willing to give into the pressure from biggies like Mukesh Ambani.
• The increased cost will be passed on to the common man in the form of higher taxes and / or tariffs.
• If the jump in prices, as sought by Reliance, goes through - the cost of electricity and fertilizers is going to shoot through the roof.
• Reliance will make a huge-huge profit. It is already making profits at the current prices - the entire threefold jump will be pocketed by the company.

If the allegation are not true then It will spoil the industrial environment of the country.

Is Indian Economy crumbling!

Indian economy has begun to show signs of fatigue. It is failing on growth and it is failing on inflation.

The IIP numbers have fallen to new lows. The growth was on 1.9% for September in contrast to the same period last year when the IIP growth stood at 6.1%. This is the lowest this figure has gone in the last two years. The other negative indicators are the state of our country's private airline companies. All are reporting losses. The crisis at Vijay Mallaya's Kingfisher is  the worst among the lot.

Even as industrial growth is falling, inflation has made life difficult for the common man, who in turn has started to mount pressure on the Government. RBI has repeatedly raised its repo and reverse repo rates in a bid to control the beast called inflation - that refuses to be tamed. Each time the "great" economists of our country release statements claiming that inflation will come down, the beast retaliates with an even bigger leap upward.

The signals being received from the overseas are also not very encouraging. The debt crisis that has been brewing in Europe is threatening to bloom into a full fledge recession - double-dip recession as some people prefer to call it. Time alone will tell whether the Union will manage to come out of the crisis or whether there will be no Union left at all.

Leaders are fleeing the scene. After a change in leadership in Greece, Italy's PM Berlusconi has submitted his resignation.

RBI hikes interest rates - Will it fight corruption

The "most popular inflation" control mechanism of the Government of India has been deployed once again. The decision of the 12th successive rate hike was announced by RBI on Friday 16-Sept-2011.

In line with common expectation - RBI has announced an interest rate hike of 0.25% (25 basis points). After today's rate hike the repo rate has become 8.25% while the reverse repo rate has become 7.25%.

Lets hope this works, because the government has lost a lot of credibility in recent times on several fronts including - combating corruption, good governance and internal security. If inflation does not come down quickly, it faces the risk of losing public sympathy even on the financial front.

Financial stability of the common has been compromised drastically in the past few months. The government can give as many excuses as it wants, but the common man is seriously and directly effected by inflation and the failure of the government (even if for reasons beyond its control) could easily effect the vote appeal of the ruling coalition in the forthcoming elections.

Fuel for inflation - Petrol becomes dearer

Adding to the woes of the common people, the price of petrol has been raised by more than Rs. 3 per liter from today - 16-Sept-2011.

The common man is surely in for a big financial beating for the forthcoming festival season, because this increase in fuel cost will ensure that the prices of other commodities also head northward.

Let us see what rest of the day has in store...

RBI is expected to announce a interest rate hike.
eGOM is expected to announce a hike in LPG prices.

Inflation on the rise - is interest hike the proper tool to tackle it

Inflation in India refuses to let go. The wholesale price index for the month of August rose 9.78% compared 9.22% for the previous month.

The measures taken by the government to curb the rising prices do not seem to be working. Reserve Bank of India (RBI) has raised interest rates 11 times in 18 months and the current rise in inflation is pointing to one more interest hike in the coming days. So much so, Indian Industry has begun to show signs of suffering from the effect of the interest rate hikes.

Some experts argue that the route of interest hike by RBI is not working because possibly liquidity if not the cause of this inflation.

Here are some  reasons that have come forward in our discussions...

• a rise in the trend of unfair trade practices used to secure disproportionate and unreasonably high levels of profit.
  • The issue is more than evident in the pharmaceutical industry where medicines that leave the factory for Rs. 2 to 3 carry the MRP tag of more than Rs. 30-40.
  • Simple nuts and bolts for bikes and cars that manufacture for a few paise are sold to the consumers for fabulous prices.
  Where are the days when a decent profit of 10% to 15% was considered adequate? Can this not be controlled or should this not be controlled?
• improper implementation of government policies and schemes... There is a clear lack of coordination between different government departments and the way the departments work within themselves.
  for eg -
  • The government announces a ban to export of onion and the agriculture minister goes public that he is not party to the decision.
  • Foodgrains are rotting kept in the open - the government does not have enough capacity to store them properly, yet people are hungry - even the Supreme Court has voiced its opinion in this matter.
• oversupply leads to inflation - The quantity of medicines that expire is increasing year-on-year, because some of the manufacturers seem to think that they can produce the entire spectrum and conquer the entire market. This is just not possible - so what happens - the medicines expire on the shelves within the distribution chain at the cost of the manufacturer. The manufacturer is forced to compensate for the loss incurred in this by increasing the prices of the regularly selling products - that's inflation.
• Crude used to be available in the range of 20-30 dollars for a long time - surely the cost of extracting crude from mother earth has not gone up as much as the price it is selling for - is this much profiteering justified?
• Last but not the least - corruption. Corruption has made so much in roads in our day-to-day activities that it has become one of the major contributors to the runaway inflation. An event like the Commonwealth Games should have ideally required a few crores to organize, but thanks to the corrupt organizers have siphoned off thousands of crores of tax-money and probably stashed it off in some Swiss Account. Now the government will have to raise taxes which will in turn send prices north.

There are many such reasons for the inflation that the common man faces, the experts need to examine these and take proper steps before things go out of hand.

Wholesale Price Index (WPI) to be released on monthly basis

The Cabinet Committee on Economic Affairs has approved a proposal to the effect that the Department of Industrial Policy & Promotion will release the current series of Wholesale Price Index (wpi) is calculated on a monthly basis.

Presently WPI is released on a weekly basis.

The compilation of the price index of primary articles and commodities will, however, continue to be a weekly event. This the cabinet believes will allow for better monitoring of the prices of sensitive commodities and products.

WPI is used to calculate inflation - a key monetary policy input.