01/04/2008 (The Economic Times), New Delhi - The Cabinet Committee on Prices (CCP) met here on Monday to consider a plethora of fiscal, monetary and supply-side measures to control the runaway inflation, which touched a record 6.68% for the week ended March 15. The CCP meeting comes against a background of record inflation, high import prices of key food items and intense worry over adverse political impact.
The government, which has been on a warfooting to combat the rising prices, is left with limited options given that the price spike is impacted largely by the global shortage in key agri products and other commodities. The possible measures being considered were aimed at providing comfort to consumers, who have seen a huge spike in their home budgets thanks to the hike in prices of food items.
The agenda for the CCP was simple—look at all possible fiscal measures which can bring down prices. The commodities on which duty cuts look imminent include edible oil, steel and cement. The government is also exploring possibilities of disincentivising exports of key commodities like non-basmati rice, sugar and steel.
The meeting, which went on for well over two hours, took stock of measures not just on the food side but also on other commodities, including duty cuts on edible oil and steel, and a possible ban on all non-basmati rice.
A cut in import duties on soyaoil, sunflower and palm oil were high on the agenda. This could impact retail price of the oil to the extent of Rs 2-3. Palm oil group duties were also considered for a cut, given that the last reduction resulted in a price drop of Rs 2-3 per kg on refined palm oil, the most consumed edible oil.
The possible duty cut is expected to bring down prices from the current Rs 65/kg in retail to around Rs 60. Refined palm oil prices came down to Rs 57/kg from Rs 62/kg after the duty cuts effected recently. Sections in the government are understood to be reluctant to reduce duties to zero since this would impact domestic oilseed growers adversely. Some 30% of the country’s consumption still depends on domestic processed edible oil.
These steps come close on the heels of duty reduction on edible oils and rice to contain prices in the domestic market. While the Customs duty on rice was slashed to nil from 70% on March 20, duty on all crude and refined edible oil imports was substantially reduced from the current level of 52-75% to 20% and 27.5%, respectively.
Palm, soyabean and sunflower oil together accounted for less than 4% of the total domestic consumption in the 70s while groundnut oil accounted for 53%. Currently, though, palm and soyabean oil account for 38% and 21%, respectively, of the total consumption.
The government had already imposed a MEP on rice exports in October last and tightened it further last week, pegging basmati varieties MEP at $1,100/tonne.