In this globalised economy external environment really plays a significant role in establishing the economic stability of a country. And when it comes to India, though economy is domestically driven, it has also been affected by the external factors of the world around.
• Greece’s, Portugal’s and Italy’s economic viability and fiscal position deterioration is a concern.
• Brent Crude price in the upcoming months is still above US$ 110 a barrel, even after International Energy Agency’s (IEA) decision to release 60 million barrels of crude oil.
• Food and Agriculture Organization’s (FAO) food price index is 39 percent higher in June 2011 as compared to the same time last year.
These are few international factors which are constantly applying a lot of pressure on the Wholesale Price Index which can be clearly visible through the inflationary trend remaining close to the double figure and hovering around 9.2 to 9.7 percent.
Domestically if magnified then it points out to certain factors which are responsible for the Reserve Bank of India’s (RBI) tightening of the key rates by 50 basis points(bps) resulting in Repo Rate hiked to 8% from 7.50%, Reverse repo amounted to 7% and Marginal Standard facility rose to 9%, are:
• Index for Industrial Production (IIP) was revised and suggested that some moderation is under way because the index dropped to 5.7% as compared to the 10.8% in corresponding last year.
• Though monsoon throughout was even but the south west monsoon has been a tad less than normal and the KHARIF sowing this season in July, 2011 with respect of pulses, cereals and cotton has been lower as in the same period last year.
• Fuel inflation rose in this quarter of 2011 but the aviation turbine fuel got spared.
• Wholesale Price Index was 9.7% in April, 2011 and the Non-food manufactured products inflation was 7.0 per cent in the same period.
• The Reserve Bank’s estimates show that the total flow of financial resources from banks, domestic non-bank and external sources to the commercial sector during Q1 of 2011-12 was lower at 2,40,000 crore as compared with 2,63,000 crore during the corresponding period of last year.
• The Minimum Support Prices of Wheat and Pulses also rose coupled with the Wage-Price Spiral factor also ignited the inflatory prices in the market.
All these factors clearly highlight the pinch a common man’s pocket would be feeling looking at the prices of some of the essentials or the basic necessities going up ranging from milk prices to the fruits or vegetable prices. And also because of further tightening of the rates by the central bank commodities from automobile to acquiring of house all would be dearer to the consumer.
Although the key rates hike is to fight the inflation down but the domestic steps taken by RBI can’t be solely responsible for taming the inflatory tiger in the domestic market rather the appropriate monsoon for the bumper crop and the tamed fuel prices globally also are imperative factors to be considered.