Inflation to be down by 100 bps in 6-8 weeks: Govt

By Abhijit Neogy, CNBC-TV18

More measures, both fiscal and administrative, are on the anvil for cement, steel and iron ore. The government hopes these measures will tame inflation to around 6.5% over the next few weeks. After steel, it is now the turn of cement producers to come up with proposals to cut prices.

Just a day after the government ensured a steel price cut and banned futures trading in four more commodities, it has said more administrative and fiscal measures to tame inflation are in the offing.

“The government is not helpless. It will take more administrative and fiscal measures for iron ore and steel if necessary,” said Ashwini Kumar, Minister of state for industries.

After steel the government is now targeting cement. A meeting with industry ministry officials and cement manufacturers has been scheduled for early next week. In return for a price cut, the industry ministry will take up the issue of abatement of excise duty and other related matters. Ashwini Kumar is hopeful that these measures will help bring inflation down by atleast 100 basis points in the next 6-8 weeks.

“The cumulative effect of all these measures is that, going forward, we expect inflation to moderate by atleast 1 percentage point over the next few weeks,” said Ashwini Kumar.

However, the government seemed to be speaking in different voices on the issue of banning futures trades in key commodities while Ashwini Kumar said its difficult to establish a link between price rise and futures trading, Agriculture Minister Sharad Pawar said the ban was warranted.

“The Finance Ministry brought the price rise in these four commodities to my notice. I also had discussions with the commodities regulator after which this decision was taken,” said Sharad Pawar.

According to government estimates, the prices of rice will fall by about 1.64% over the next few weeks, that of wheat by more than 9% and edible oils by more than a whopping 18%.

But experts say high commodity prices, skyrocketing fuel and metal prices as well as the statistical phenomenon of a low base effect may mean that the government is perhaps being too optimistic too soon.