Write Comment     |     E-Mail To a Friend     |     Facebook     |     Twitter     |     Print

NEW DELHI: Despite the forecast of a better-than-average monsoon, it can never be good news when the price of tomatoes goes through the roof. And it has.

So bad is the news that Finance Minister Arun Jaitley has called a high-level meeting today to discuss ways to keep commodity prices in check.

Crude Culprit

Blame the price of crude oil that’s touched a 7-month high. It is going now for $50 a barrel.
What’s the connection between the cost of a tomato and the cost of crude oil? This: Oil prices affect the entire economy because of its use in transportation of goods and services.

India, which depends on imports to meet 80% of its oil needs, will have to spend Rs 9,126 crore more for every dollar per barrel increase in crude oil prices. So, even if the price of crude oil increases by $5 a barrel, it would lead to dizzying inflation .
Tomatoes bear the first brunt

Tomato prices have blown through the Rs 60 a kilo mark and now cost upwards of Rs 65 a kilo, if you’re lucky enough to be in Kolkata or in Delhi, and up to Rs 80 a kilo, if you happen to be in Chennai.

Because of that, data released yesterday showed that vegetable price inflation rose 2.21 percent to 12.94%. That then badly hit the Wholesale Price Index, or WPI, pushing it to 0.79% in May, its highest level in 19 months.

With no change in the already high inflation in the price of pulses - at 35.56 percent - food inflation on the whole spiked to 7.88% in May from 4.23% a month earlier.

Pulse unbending

In fact, pulse inflation has remained in double digits since January of last year. Pulses are retailing at over Rs 170 a kg, even though the government is trying to increase its supply through the creation of new mechanisms like a buffer stock, and with imports.
Industry has been asking for "supply side responses" and that’s one issue that will likely be discussed at today’s meeting.
The government has procured 1.15 lakh tonnes pulses directly from farmers, as of now, for creating a buffer stock of 1.5 lakh tonnes this year. It is also importing pulses through state-owned trading agencies, PTI reported.

Subsidies will likely be debated today, as will a duty on the import and export of sugar, wheat and edible oils, sources told news agencies.
Oil is everything

Minister Jaitley has said India can handle the current crude oil price level, but if it spikes further, it will lead to inflationary pressure.
Minister of State for Finance, Jayant Sinha, said in an interview to PTI that the economy will be "fine" if oil price stays in the range of $40-60 per barrel.

Inflation up, interest rates up

Anticipating this inflationary scenario, Reserve Bank of India Governor Raghuram Rajan kept the main policy interest rate unchanged at 6.5% earlier this month.

The bank also said then inflation readings make the future trajectory of interest rates somewhat more uncertain.
Top Comment

The government has been publicising the growth graph to the people of the country painting a rosy picture. It has consistently failed to arrest the rising prices of vegetables and pulses. An average ... Read More
K.S.Chandra Shekhar

Economists said earlier this month that if another cut does happen it will possibly be the last reduction in rates in the cycle.
"We will have to figure out ways to attain 5% inflation target set for Jan 2017," Rajan said.