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MEETING ON Thursday amid various trying circumstances which do not augur well for the economy, the Prime Minister?s Economic Advisory Council endorsed the government?s decision to hike petroleum prices and the RBI?s decision to raise repo and reverse repo rates that is bound to make loans for individuals and companies expensive. The interest burden on existing personal and housing loans is also bound to hit the urban and semi-urban households badly.india Updated: Jun 09, 2006 01:25 IST
MEETING ON Thursday amid various trying circumstances which do not augur well for the economy, the Prime Minister’s Economic Advisory Council endorsed the government’s decision to hike petroleum prices and the RBI’s decision to raise repo and reverse repo rates that is bound to make loans for individuals and companies expensive. The interest burden on existing personal and housing loans is also bound to hit the urban and semi-urban households badly.
As the current developments in various sectors of economy worry investors, households and corporates alike, four serious concerns emerged before the council that met at Dr. Manmohan Singh’s residence.
The first is the inflationary pressure which is bound to translate into higher prices of essential commodities, following increase in petroleum prices and upward revision in key rates by the RBI.
The Prime Minister’s team, headed by former RBI governor C. Rangarajan, conceded that both direct and indirect impact on inflation would be about one per cent. But independent experts feel that the impact would be much more and the inflation might cross the 5.5 per cent mark by conservative estimates.
Both higher interest rates and petroleum prices are bound to burn a larger hole into the household budgets across the spectrum, putting an end to the ‘feel good’ factor in the economy.
Secondly, the stock market crash during the last four days, which wiped out investors’ wealth, has also put the government in a bind. As the Prime Minister’s council expressed concern, Dr. Manmohan Singh himself took note of the free fall that crossed 1,000 points in four days. For individual investors, it was a double whammy due to petroleum price hike and hardening interest rates.
Third area of concern was the prices of several commodities that have already seen an upsurge. This has forced the government to go for wheat import that remains a non-starter. The government also had to scrap the 10 per cent customs duty on pulses to make imports cost-effective in retail market.
The fourth issue that worried the council was fear of less-than-expected agricultural growth. Infrastructure bottlenecks and pending reforms in sectors like pension and banking also preoccupied the Prime Minister and his advisory council.
Though Rangarajan put up a brave face, the limitations of coalition politics seem to have irked Dr Manmohan Singh and the economy managers.