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PETROL PRICE MAY COME DOWN UP TO Rs. 1-1.50 per litre-

Petrol price may be cut by as much as Rs. 1-1.50/litre next week on falling international oil rates and appreciating rupee but a onetime hike in diesel and LPG rates is still on cards.

 In my opinion, fall in petrol prices caused by the reduction in international oil rates would help in appreciation of rupee as the prices would stabilize or decrease once the Syrian war cools down. However, the possibility of rising LPG and diesel rates would be a burden borne by consuming population as it’s an economic and political challenge. Moreover, the subsidy burden has reached unsustainable levels which cannot be financed by government budget and oil cos. With limited financial resources, the government cannot run the risk of inflating the fiscal deficit as it would lead to further depreciation in rupee and downgrade in credit rating. Should the government consider all the above factors or go ahead with the price cut??

WON’T CROSS RED LINE ON FISCAL DEFICIT: P. CHIDAMBRAM

P. Chidambram has reiterated that the fiscal deficit budgeted for the year will not be crossed even when the economy is going through a period of stress. The gross direct tax collections rose 14.4% in April-August to Rs. 1.88 lakh crore as against Rs. 1.64 lakh crore lay year and according to CSO, a growth of 5% in 2012-13 has been reported for almost all states.

I am of the opinion that the government despite going through tough times is taking steps to address the situation in order to restore confidence in Indian economy. Looking at the 5% growth rates provided by CSO, government can find out where the growth is able to sustain and where it is not so as to take corrective action. However, this poses a question whether these measures are enough to control governmental expenditure and in affect stabilize rupee?

A HOUSING SLUMP IN INDIA: REAL ESTATE MARKET CRUMBLES AS ECONOMY SLOWS

The real estate market in cities across India is crumbling because of economic slowdown. The RBI has raised the short term interest rate for commercial bank borrowing to 10.25% in order to reduce leaving of money from the country which is followed by a regulation banning Indians from transferring money overseas for real estate purpose. India’s real estate developments may take a long time to build because of vast and corrupt regulatory practices. Moreover, publically traded real estate investment groups in India are heavily in debt.

In my view the volume of real estate transactions have slumped because of depreciating rupee which is scaring away foreign investors. Developers have refused to offer discounts for fear of starting market rout. The problem has been aggravated as sellers refuse to cut prices causing potential buyers to lose interest. One major complaint regarding Indian business practices is that banks lend to elite persons who often put little of their own money in such deals and rely on minority lenders and bank loans. Since repayments on loans are happening at a slower pace, these investors tend to lose heavily.   One example could be DLF; a pioneer in real estate which started OMR road in Chennai in 2007/08, but till date has not been able to sell even 50% of 3000 units. How does the government plan to deal with these issues?       

DELHI-MUMBAI INDUSTRIAL CORRIDOR: RS 1.2L-CR PROJECTS CLEARED

The government has cleared a raft of projects worth Rs 1.2 lakh crore under the much-hyped Delhi-Mumbai Industrial Corridor (DMIC) project as part of its initiative to spur manufacturing in the country. India's ambitious $90-billion DMIC project is aimed at creating mega industries infrastructure along the Delhi-Mumbai Rail Freight Corridor, which is under implementation. Japan is giving financial and technical aid, and has committed to invest $4.5 billion in this project. This will help in expansion of foreign direct investment and create both direct and indirect jobs in the economy.

In my view clearances of such projects will positively impact the economy only when they are implemented successfully. In the last 5 years, a large number of projects on the development side have not yet started due to land acquisition and environmental clearance problems.   Most of the NPA's in public sector banks are due to clearances such as these. The most crucial question remains unanswered as to whether this move is in lieu of elections or the government actually understands the need of the hour?     

WALMART’S INDIA PLAN BY SEPTEMBER-END

Wal-Mart has put its India expansion plans on hold as it deals with compliance investigations and unease over the government’s rules for foreign investment in retail businesses. They will now call by the month end as to whether it continues to do business in India or exit the Country all together. According to retail analysts, Wal-Mart and its subsidiaries have stopped expanding and Wal-Mart is also investigating whether company executives in India violated the US Foreign Corrupt Practices Act by lobbying.

In my view, If Wal-Mart and Tesco decide to withdraw from the India market for their own reasons, and then it’ll pose a big question on the government’s decision to open up retail. The UPA government was as it is under attack from foreign lobbies and was accused of "policy paralysis" last year. To appease them instant decisions were taken up to open sectors namely, retail, aviation & energy exchange.  But such a situation reveals lack of ground work for operations on India’s part. The country immediately needs to revive foreign investor confidence, but how does it plan to do so remains an unanswered question.

Contributed by:

Akritti Nirula
Section A, Economics
Batch of 2013-15