India feels the price pain; government faces heat | mumbai | Hindustan Times
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India feels the price pain; government faces heat

mumbai Updated: Sep 16, 2011 21:54 IST

Agencies
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Loans are set to get costlier after key interest rates were hiked by 25 basis points for the 12th time since March 2010. The price of petrol was raised on Thursday -- the 10th such increase since June 2010. If that wasn't painful enough, there is a chance that LPG price will go up.

The Reserve Bank of India (RBI) said on Friday after its mid-quarter review of the monetary policy that the petrol price hike effected by the oil marketing companies will marginally add to upward pressures on headline inflation.

"Oil marketing companies raised the price of petrol by Rs 3.14 per litre with effect from Sep 16, 2011. This will have a direct impact of 7 basis points to WPI inflation, in addition to indirect impact with a lag," the RBI said while hiking repo rate by 25 basis points.

The repurchase rate (repo), or the interest the central bank levies on short-term borrowing by commercial banks, has been raised to 8.25% from 8%.

Automatically, the reverse repurchase rate, or interest on short-term lending, gets hiked to 7.25% from 7%, since the central bank felt inflation levels remain well above its comfort zone.

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Headline inflation based on the wholesale price index (WPI) nudged double digit levels at 9.8% in August, rising from 9.2% in the previous month.

Inflation in respect of primary articles and fuel groups also edged up in August.

Petrol prices were hiked for the 10th time since June 2010 from Friday as India's oil retailers sought to pass most of the burden of the falling value of the rupee and high crude prices on to consumers.

LPG next?

A ministerial group was scheduled to consider limiting supply and hike in price of liquefied petroleum gas (LPG) on Friday but its meeting was deferred indefinitely due to political pressure.

The Empowered Group of Ministers (EGoM) headed by finance minister Pranab Mukherjee was scheduled to consider the recommendations of a task force on LPG and kerosene pricing.

The panel has proposed that every household should be given only four to six LPG cylinders per year at a subsidised price and additional cylinders should be supplied on market price. Average households use 20 to 30 LPG cylinders each year. Cartoon: No petROLL BACK?

An LPG cylinder is sold at a subsidised price of Rs 395 in Delhi while the market price is around Rs 700 per cylinder.

The EGoM meeting may have been deferred because of growing protests againt the petrol price hike. The Bharatiya Janata Party has called the petrol price hike a result the government's "direction-less" economic policy.

"The repeated increase in prices of petrol and diesel were affecting the middle classes and the lower classes the most. Prices of daily need items would also increase because of the increase in oil prices," said BJP leader Rajnath Singh.

"The repeated increase in prices of petrol and diesel were affecting the middle classes and the lower classes the most. Prices of daily need items would also increase because of the increase in oil prices," he said.

And the RBI's rate hikes have not impressed the industry.

"Even as RBI justifies this rate hike to dampen inflationary expectations, it is difficult to fathom that this will be achieved when a cumulative rate hike of 325 basis points since March 2010 could not achieve this objective," said Ficci secretary general Rajiv Kumar.

Assocham expressed a similar view that successive rate hikes by the central bank have not been able to control inflation.

(With inputs from IANS and PTI)