11/30/2009, 00.00
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India grappling with inflation above 15%, record gold process and the crisis in Dubai

by CT Nilesh
The rise in prices, especially for basic necessities, creates broad discontent among the population and a trading of accusations between political parties. The state buys gold, but says it still has confidence in the dollar. Major impacts from the real estate crisis in Dubai.

Mumbai (AsiaNews) - In a developing economy like the Indian one, the rise of the industrial production index is inevitably followed by the rise of the price of food. In this month, food inflation touched a record high of 15.48%. Prices of vegetables and essential food items have risen to new levels of absurdity.  Some people blames the recent cyclone Phyan but some other accuses the government of faulty policies.

Vinod Jadav, who sells vegetables at both wholesale and retail rates in Dadar Market in Mumbai, said: “I have been in this business for several years, but I have never seen prices skyrocket like this”.  Krishnakant Gandhi importer of frozen food blames the ministry of manipulating the market to suit local powerful lobby. Experts also question agriculture minister Sharad Pawar’s frequent forecasts about retail prices being set to rise further due to the failure of the monsoon. This gives hoarders the psychological advantage to drive up rates immediately rather than wait for the next crop to arrive.

But also the prime minister, Manmohan Singh, interviewed by school children during the celebration of Children’s Day, requested to do something about the rise of food prices, he explained that something can be done, but as the per capita income of the nation is rising, it is but natural that also the farmers should get better prices for their produce.

Never the less the Congress Party has moved swiftly to political damage control reminding the government  to take all steps to curb the menace of shooting prices. Congress general secretary, Janardan Dwivedi said the reminder was required as it was a “coalition government and not a full-fledged Congress regime”. This is a reference to agriculture minister, Sharad Pawar, who is not a member of the Congress. A day before this statement, the Opposition protested to the treasury benches over price rise of essential commodities.

On an other front also the price of gold has crossed the mark of 18.000 rupees per  10 gram (Euro=66 rupees). This is due to the fact that the Reserve Bank of India had bought 200 tonnes from IMF of gold between October 19 and October 30. Two factors: apprehension of depreciation of dollar and expectation of more central banks buying gold, are pushing up the price. The retail demand in India, which regained its position as the largest consumer of gold in the world market, has also picked up with the marriage season setting in.

But in spite of India buying gold, the Prime Minister Manmohan Singh during the state visit to USA declared: “As far as I can see right now, there is no substitute to the dollar”.  The Reserve Bank of India’s dollar-for-gold swap was seen in the world’s financial and political capitals as an implicit vote of no-confidence in the US economy.  This is also in contrast to the Chinese suggestion that the dollar’s days as the preeminent currency may be drawing to an end. As America’s largest creditor, China holds sway over Washington. For the moment Singh is applying balm  on America’s wounds.

The third factor upsetting the Indian economy is the storm building up in Dubai  There are fears that Dubai government-owned Dubai World and its real estate arm Nakheel may default on debts worth bn. The companies were badly hit by real estate crash due to the global financial crisis.

 Despite the brave front put up by the Indian government, the debt crisis that has enveloped Dubai World threatens to hit the struggling Indian overseas labour market that is largely dependent on short-term Middle East job contracts. The latest crisis comes at a time when official estimates have admitted that unemployment rates have spiraled to 30% in the Middle East in the last one year.  As a consequence remittances to India are certain to be much lower then last year, 2007-08, .5 billion. It is well known that when Dubai sneezes, south India, especially Kerala, catches more than just a cold.


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