Government mulls price index for building materials

Government mulls price index for building materials
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First Published: Wed, May 14 2008. 11 40 PM IST
Updated: Wed, May 14 2008. 11 40 PM IST
New Delhi: The Union ministry of urban development is considering linking cost escalation in contracts to a building materials price index instead of the current practice of pegging it to the wholesale price index (WPI) for contracts issued by the central public works department, or CPWD. “It (the proposal) is currently in a consultative process,” said urban development secretary M. Ramachandran.
This comes as a response to appeals by building contractors. According to them, WPI doesn’t adequately capture the recent spurt in steel prices because of the commodity’s comparatively low weightage in the 435-item WPI basket.
Steel price inflation for the week ended 26 April was 28.87%, while the overall WPI-based inflation stood at 7.61%. Including steel sheets plates and strips, there are 11 steel products in the WPI basket, each with a different weightage.
CPWD already collects price data--on certain commodities twice or thrice a month—which are averaged and used as a base number for awarding contracts. If the plan is approved, escalation will be linked to this data, rather than WPI, said a CPWD official who didn’t wish to be named.
The builders are of the view that the price rise becomes even more significant in the backdrop of the 2010 Commonwealth Games in New Delhi for which CPWD is giving out contracts for the construction of a number of buildings—such as stadia and the games village. Most of these projects use large amounts of steel.
According to builders, CPWD offers some Rs300-400 crore worth of contracts every month in Delhi alone. Steel constitutes nearly one-fifth of the value of the contracts, say experts.
The CPWD official said the weightage for each commodity on the building materials price index is being worked out. An official of the rank of assistant director general or above will be authorized to add or remove commodities from the index, he added.
The ministry has also separately written to the office of the economic adviser at the ministry of commerce and industry to add commodities such as thermo-mechanically treated (TMT) steel bars, which are not part of the WPI index at present, to the basket since it is used extensively for construction, he said.
“All we are saying is that the price adjustment clause in the new contracts should be well-defined,” said Arun Sahai, chief executive officer of Ahluwalia Contracts India Ltd, which undertakes building work for CPWD.
Moody’s cautions India on inflation
New Delhi: International rating agency Moody’s Investors Service has retained its Baa3 (low investment-grade) rating on India’s sovereign foreign currency obligations, as well as the Ba2 (two notches less) for the local currency bond rating with a “stable” outlook (which implies that there is no likelihood for revision).
Moody’s annual report on the country, released worldwide on Wednesday, said the ratings balance a high level of government debt and interest servicing burdens with external fundamentals strong enough to withstand potential shocks such as sudden reversals in short-term capital flows, a sharp slowdown in global growth, as well as a slowdown in structural reforms on account of coalition politics.
However, the report cautions that although the Reserve Bank of India has managed to restrain demand pressures on prices over the past year, large capital inflows and commodity price shocks have coupled with the government’s ad hoc responses such as price caps and trade curbs to worsen inflation fundamentals. Paromita Shastri
EDS arm Mphasis may go private following HP deal
Bangalore: Computer maker Hewlett-Packard Co.’s (HP)decision to buy larger IT services rival Electronic Data Systems Corp. (EDS) could lead to a possible delisting of Mphasis Ltd, EDS’ Indian subsidiary, said an analyst, who has revised the target price for Mphasis’ shares anticipating an open offer.
Citi Investment Research, a division of Citigroup Global Markets Inc., has advised investors in a note to buy Mphasis shares with a target price of Rs305, one-fifth higher than its current trading price.
“We expect Mphasis to be delisted and merged with HP offshore if the combination goes through,” Citi analysts Hitesh Shah, Surendra Goyal and Vishal Agarwal said in the note.
Shares of Mphasis, which is 61% owned by EDS, rallied further on Wednesday to close 2.7% higher at Rs249.2 on the Bombay Stock Exchange, or BSE. Analysts attributed the gains to a weakening rupee against the US dollar, which saw the BSE IT index go up 3.8%, whereas its benchmark sensitive index rose 1.35%.
Following the news of HP’s bid on Tuesday, Mphasis shares had gained about 10% on BSE. EDS acquired a majority stake in Mphasis in 2006 and merged it with its Indian arm last year.
Institutional investors such as Barings India Investments Ltd and HSBC Global Investment Funds own a little more than one-fifth of Mphasis, while individual shareholders own about 7.35%.
The combined HP-EDS entity has the option to take Mphasis private immediately after closing the global transaction and merge it with the offshore base of HP. Vishwanath Kulkarni
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First Published: Wed, May 14 2008. 11 40 PM IST
More Topics: Moody | EDS | Govt | Material | Inflation |