Week in review for 16 September 2011

Week in review for 16 September 2011

The Reserve Bank of India increased its key policy rate by 25 basis points. After the increase the repo rate, which is the short-term lending rate will be 8.25%, while the reverse repo rate, the rate at which it drains liquidity stands adjusted at 7.25%. This is the 12th time the RBI has increased the policy rates since March 2010, in an effort to curb persistently high inflation.

New figures show wholesale inflation in India surged to a 13 month high in August. The wholesale price index jumped 9.78% during the month. In July it gained 9.22%. Food inflation though has eased slightly through the end of August and beginning of September. The food price index rose 9.47% in the week to the 3rd of September. In the previous week it climbed 9.55%.

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Government owned oil marketing companies have raised petrol prices by 2.61/litre. This price hike combined with local levies will translate into different prices across the country. After the latest increase, petrol will cost 66.84 a litre at IOC outlets in Delhi, 71.92 in Mumbai, 71.28 in Kolkata and 70.82 in Chennai.

The government has deferred a meeting of the Empowered group of ministers who were to decide on limiting the supply of subsidized LPG. The meet was called off "due to non-availability" of certain members of the panel. The EGoM was to consider limiting the supply of subsidized LPG cylinders to 4-6 per household in a year to cut down the government’s subsidy outgo by over 12,000 cr.

India’s struggling airlines are looking for a way out of their losses and airfares are their first target. The country’s big carriers met on Monday to discuss hiking current ticket prices, which they believe are too low. Two airlines, Air India and IndiGo stayed away from the meeting. The subject of hiking airfares is a sensitive one and could attract the attention of the Competition Commission of India. But airlines including Jet and Kingfisher have made losses in the first quarter and are staring at the possibility of losses throughout the fiscal.

Factory output in July has plunged to its lowest in 21 months. The Index of Industrial Production inched up just 3.3% during the month, in June it was at 8.8%. According to the sector wise break down, manufacturing output during the period grew at just 2.3% in July compared to 10.8 in the year-ago period. And mining went up a mere 2.8% compared to 8.7%. Capital goods actually showed a steep decline of 15.2%. Electricity on the other hand showed a robust 13.1% increase during the month compared to a mere 3.7% in July of last year.

Advance tax numbers for this year’s second quarter are also giving strong indications of a slowdown. At the very least, they suggest the three months to September will not be very profitable for corporate India. Payments from the 100 biggest companies based out of Mumbai went up 18% for the quarter ending September. In contrast, the government expects to see a full 31% increase in advance taxes for the current fiscal. Companies pay advance taxes based on their projected earnings.

The alliance between Suzuki Motor and Volkswagen is coming to an end. Suzuki has offered to buy back Volkswagen’s nearly 20% stake in the company. In turn, Suzuki says it will sell its own 1.5% stake in Volkswagen. Suzuki and Volkswagen forged their alliance in December 2009. According to the partnership, Suzuki was supposed to increase Volkswagen’s India presence and Volkswagen was supposed to develop new diesel and hybrid engines. Volkswagen later said that the Japanese carmaker was breaking the terms of the deal by striking diesel-tech agreement with Fiat.

The imminent slowdown of India’s growth is already having a negative effect on the country’s job market as well. According to the latest figures of the Manpower Employment Survey, India’s Net Employment Outlook is just over 30 % for the period of October to December, as compared to 45% in the previous quarter. Despite the falling numbers, the employment outlook for the country is still among the strongest in the world.

The defense lawyers in the 2G trial have challenged CBI’s decision to disregard the law ministry’s definition of an associate company. Going by the ministry’s definition, Swan Telecom might not qualify as an associate company of Reliance Telecom. The same principle will also apply to Loop Telecom, which could be investigated as a front for the Essar Group.

Finance Minister Pranab Mukherjee has expressed concerns over the deepening financial crisis in Europe. He cautioned the global community not to lose its nerve and called for collective action to overcome the crisis.

Sonia Gandhi is back at work. On Thursday she attended a meeting of the Congress’ central election committee to discuss the Uttar Pradesh state elections slated to take place sometime early next year. Gandhi returned from the U.S. last week after undergoing surgery for an undisclosed illness.