INDIA BUSINESS WORLD - April 1st - April 15th - 2008
GOVT FIGHTS PRICES WITH DUTY CUTS, EXPORT BAN
The Cabinet Committee on Prices (CCP), which met against the backdrop of spiralling global prices and a record inflation of 6.68%, has decided on a plethora of measures, including fiscal duty changes and administrative measures that will empower states to impose stock limits on essential commodities. A possible cut in import duties and imposition of export duties on steel look imminent.
The government’s price-war strategy, amid wide speculation that even spooked the markets, is aimed at softening prices of basic food items that impact kitchen budgets. From edible oils to rice, butter and ghee, the government has pulled out all stops to ease supply-side crunches and bring down the aam aadmi’s food budget. A series of measures, which include large dollops of disincentives for exports, was announced to divert more grain and pulses to the domestic market.
For example, prices of refined soya oil would come down by an estimated Rs 10 per liter to Rs 55 per liter while palm oil could see a drop of Rs 3-5 a liter to Rs 52 a liter.
While import duties on crude edible oil—soya, palm and sunflower—were removed (it was at 20%), those on all refined edible oils were slashed to 7.5% from 27.5%. Duties were also slashed on hydrogenated vegetable oil and fats to 7.5%. Butter and ghee, on the other hand, will now attract an import duty of 30% as against 40%. Although this is expected to reduce retail prices of edible oil, it will impact domestic oilseed growers, who will find it tough to get a remunerative price for their produce. Maize can now be imported at nil import duty up to 5 lakh tunes as against 15% earlier.
The government has decided to ban exports of all non-basmati rice. This will bring in an estimated 8 lakh tonnes of Pusa 1121 rice into the domestic market, albeit at the cost of basmati traders. The minimum export price on basmati rice has been hiked to $1,200 per tonne, thus making it tougher to export cheap basmati. CCP has also extended the ban on export of pulses for one more year.
While the duty changes are aimed at higher and cheaper imports, which are expected to have a trickle-down impact on domestic retail prices, administrative measures like empowering states to impose stock limits will discourage hoarding within states by traders and inter-state movement of commodities like edible oil, pulses and rice. Such restrictions will tend to have an impact on the supply side, which in turn could have a softening impact on prices.
Finance minister P Chidambaram also cautioned steel producers to hold on to the price line and observe restraint. Steel prices have surged in the past few weeks, adding to a spiralling impact on several other sectors, including manufacturing. “The government is extremely concerned about rising steel prices. I would advise restraint. The commerce and steel ministries will be meeting iron and steel producers to bring them together on the pricing issue.”
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