Expert Zone

Straight from the Specialists

The enigma of diesel prices

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

Budget considerations make it necessary to raise prices of diesel; political exigencies make that difficult. No wonder Chief Economic Adviser Kaushik Basu was cautious enough to suggest ‘partial decontrol’. But the present is the time to do more than that.

Diesel prices were last increased in June 2011. With the current administered price, marketing companies are forced into under-recoveries which now amount to over 9 rupees per litre. Not all under-recoveries are subsidies. The government funds the major part with oil companies absorbing the balance. Call it whatever but there is an outflow of cash from the government.

The planned under-recoveries keep the price of diesel deliberately low. Diesel is 20 percent cheaper in India than in Pakistan, 27 percent cheaper than in China and 34 percent cheaper than in Brazil. This under-pricing of diesel has resulted in two major undesirable consequences.

No silver lining in this monsoon cloud

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

India’s monsoon rains have been delayed and were already 30 percent deficient by the end of June. There are doubts whether rains will pick up during the rest of the season. August and September are likely to be dry which will damage crops and reduce farm incomes.

Foreign borrowing or foreign investment?

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

The market’s response to the currency measures announced on Monday was a dip in the Sensex. Much was expected after the announcement made over the weekend by the finance minister. What has been actually initiated cannot make much difference either to the rupee or to growth.

RBI needs to take bold steps

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

Expectations of a rate cut were legitimate. But the RBI preferred to pause, not quite convinced that inflation is under control. That has been its singular target though it is dressed up to look more appealing as growth-inflation dynamics.

Where will the rupee finally rest?

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

For nearly a decade, the rupee has been stable — moving in the narrow range of 44-45 to the dollar. But since August last year, the rupee began to slide and in less than six months was down 23 percent.

Should the RBI delay a rate cut?

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

With the return of inflation, there are doubts whether the Reserve Bank of India (RBI) will go in for the next cut in repo rate any time soon. In April, inflation was up at 7.2 percent, 2 percent more than in March.

Is the economy drifting towards a crisis?

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

Standard & Poor’s India outlook downgrade was expected. What is disturbing — the government managed to do that in less than two years. It was in March 2010 that India was upgraded to ‘stable’ — and now it’s down to ‘negative’. It was not because the government took a wrong step but because it did not take any step at all. And if this continues, the economy will be confronted with a crisis.

RBI rate cut — too little, too late?

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

The RBI Governor cut the repo rate on April 17 quite reluctantly, even hinting there wouldn’t be another cut soon. Perhaps, he was under pressure from elsewhere, compelling him to look beyond inflation which had been his sole criterion in raising the repo rate.

Off the balance in external payments

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

It always takes time for the government to wake up to any emerging problem; and when it does, the problem is already magnified. That is what’s going to happen to the balance of payments.

Will the RBI change its mind?

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

The RBI seems to be almost obsessed with the high rate of interest. At the January review of credit policy it remained silent and on March 9 made an unscheduled announcement about the cut in CRR to make up for the shortfall in liquidity. Though this infused 480 billion rupees into the banking system, it did not ease interest rates in spite of persuasion by the Finance Ministry.

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