03/16/2010, 00.00
INDIA
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Record inflation as food prices climb steeply

Inflation reaches 9.89 per cent; sugar is up 55.47 per cent; potatoes rise 30 per cent. Opposition slams government over fuel tax, announces battle in parliament over budget. Action by central bank is on the agenda. Some analysts slam budget for lack of medium-term perspective.
New Delhi (AsiaNews/Agencies) – India’s benchmark wholesale-price index climbed 9.89 per cent in February from a year earlier, the highest increase since October 2008. The government announces that the current five-year plan is likely to generate 58 million new jobs.

Inflation, which rose by 8.56 in January, is raising concerns because of rising food staple prices. For instance, sugar prices rose by 55.47 per cent in February year-on-year, whilst potatoes rose by 30 per cent. Among fuel items, petrol prices rose by 11.73 per cent and high-speed diesel around 9 per cent.

Medium-term forecasts point to further rises, especially since oil prices are going up.

The index measuring wholesale prices of lentils, rice and vegetables slowed to a 17.81 per cent in the week ending 27 February after a 17.87 per cent gain the previous week.

Overall, experts expect food prices, the main driver of inflation, to ease. In fact, the wheat harvest should reach record levels this year with a positive effect on prices, Indian Agriculture Minister Sharad Pawar said.

Manufactured-price inflation was 7.42 per cent in February but industrial output expanded 16.7 per cent in January.

Manufacturing inflation is strengthening in India, central bank Governor Duvvuri Subbarao said last week. He expects prices to rise further after tax increases in the 26 February budget go into effect.

Economists expect the Reserve Bank of India to raise interest rate; they had recently hit their lowest levels.

Investors are waiting for the government bond auction to start for the fiscal year beginning 1 April. When he unveiled the budget on 26 February, Finance Minister Pranab Mukherjee said the government would borrow a record 4.57 trillion rupees (US$ 100.1 billion) in the next fiscal year.

GDP growth in the fiscal year ending this month is estimated at 7.2 per cent, after 6.7 per cent last year, with government spending a key component. At the same time, general government debt should reach 82 per cent of GDP.

Critics have attacked the government’s budget, saying that it focused too much on a handful of one-off items rather than establishing a basis for medium- and long-term fiscal consolidation.

On the expenditure side, Delhi is spending too much on subsidies, principally on food, fertilisers and fuel, ostensibly to help the poor, but too much of it going to middle- and high-income households, as well as civil servants.

In the next 20 years, India will have to create jobs for 240 million new entrants to the labour force, a million new jobs per month. Hence, the government needs to improve education and health care and ensuring that infrastructure can match growth.

High inflation is going to prove politically very controversial. Opposition parties have already announced their intention to vote against the budget unless the fuel tax is not cancelled. In their view, such a levy will just cause more inflation. The budget vote in parliament will be close since the ruling United Progressive Alliance can count only on 268 votes in the 543-member chamber.

Labour and Employment Minister Mallikarjum Kharge on Monday told the Lok Sabha (lower house of parliament) that 58 million new job opportunities should be created during the 11th five-year plan (2007-12), thanks to various steps including three stimulus packages since December 2008.

Employment is projected to grow at an average rate of 2.73 per cent annually.

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