Meeting taken by Union Agriculture Minister Shri Radha Mohan Singh to review preparedness in case of a deficient monsoon.

Shri Radha Mohan Singh, Union Agriculture Minister today here took a review meeting of the efforts being made since April to face the deficient monsoon, Shri Sanjeev Balyan, Minister of State for Agriculture was also present.  The meeting was attended by the senior officers of Agriculture Ministry including Secretary, Department of Agriculture and Cooperation, Secertary, Department of Animal Husbandry, Secretary, ICAR, Secretary, Ministry of Power, Officers of Ministry of Water Resources, Ministry of Rural Development, Ministry of Fertilizers, Secretary, NDMA, Officers from Indian Meteorological Department (IMD) was also attended the meeting.  The meeting reviewed the latest monsoon predictions in June given by the IMD.  Accordingly to these predictions the North West area will receive 85% rainfall, which is little less than the average.  According to these predictions it is expected that the rainfall will be deficient by 12%.

Last year also the prediction of IMD was made in the month of June for this region had indicated that the rainfall will be 85% and in 12 divisions there will be an expected deficiency of 12%. However the preparation of Government was such that sowing was affected only in 2% and the production was affected by 3% only.  The slightly deficient prediction for this region will not have an adverse impact as the area under irrigation in this area is very high.  The status of reservoirs in this area is also very encouraging.  While the storage capacity in the North West region last year was only 38%, this year it is 42%.  It may be mentioned that the average storage capacity for this region for last 10 years has been 28% only.  Therefore there is no reason for any worry.  Water harvesting as also drought related works already undertaken under MNREGA is around 116000.  Ministry for Power has also prepared a contingency plan for supply of adequate electricity.  Ministry of Fertilizer has already released 90 lakh tone fertilizers till May, 2015 to the States as against 60 lakh tones demanded by the States.  This is part of the advance preparedness for the kharif crop.

All the Ministries are well prepared to handle drought and have nominated a nodal officer for the same.  Ministry of Agriculture has nominated Jt. Secretary level officer as nodal officer for each State.  Department of Animal Husbandry has also nominated a nodal officer for 8 regions.  Officers of the Seed Corporation also informed that sufficient quantity of seeds that can be effective in deficient rainfall are available.  Similarly officers of the Deptt. Of Animal Husbandry informed fodder seeds are also available in sufficient quantity.

It is a matter of satisfaction for the farmers that the North West are in which there is a probability of deficient rainfall, has sufficient irrigation avenues available.

The preparation for Kharif Started with convening of ‘National Kharif Conference’ on 7^th and 8^th April, 2015, by inviting all the state governments and other Departments/Ministries.  The Hon’ble Minister for Agriculture inaugurated the conference and participated in the deliberations.  He emphasized the need for a coherent and comprehensive production plan for Kharif 2015.  He also highlighted the need to be prepared with contingency plans for Kharif, in the event of below normal monsoons. The criticality of preparation against the backdrop of drought situation of 2014 and damages during Rabi 2015 arising from natural calamities was also emphasized. 

2.         The Ministry of Agriculture with support from ICAR-Central Research Institute for Dry land Agriculture (CRIDA), Hyderabad has prepared detailed crop contingency plans for 580 districts spread over 25 States.  As seen from the experience of last year, these are highly useful in case of a deviant monsoon.  As regards North Eastern States, contingency plans for 30 districts are under preparation, and will be ready by the end of this month.

Secretary DAC and Secretary DARE jointly organized a one day workshop at CRIDA, Hyderabad on 24.04.2015 with ICAR Institutes, SAUs and State Governments.  We reviewed the operationalization of these contingency plans prepared for the previous monsoon season and advised, that these be revised and further fine-tuned based on the learnings of the last year. The current year’s contingency plans have incorporated the required changes.

CRIDA has begun organizing state-level workshops for all agriculturally important States, where senior officers and scientists from this Ministry, ICAR Institutes, CRIDA, Krishi Vigyan Kendra (KVKS), etc. interact with officials of State Government to facilitate fine-tuning and operationalization of contingency plans. Such meetings have already been organized in several states such as Gujarat, Maharashtra, Andhra Pradesh, UP, Karnataka & Chhattisgarh etc. In the remaining states, meetings are scheduled to be conducted in the month of June.

3.         The State Governments have already been advised, vide own letter dated 07^th May, 2015, to initiate advance remedial measures encompassing various engineering and agronomic practices for moisture conservation and more efficient use of available water.  The advice includes using MGNERGA funds for WHS, desilting of canals, energizing tube-wells, replacing/repairing faulty pumps etc. The Chief Secretaries of States have also been requested to advise the APCs/Principal Secretary (Agriculture) to conduct periodic reviews on preparation for kharif season, with emphasis on contingency crop plans and investments made in water conservation structures under various schemes like ‘Integrated Watershed Management Programme’ (IWWP) etc.

4.         The States have   been advised to keep aside about 5 to 10% of the fund allocated under Rashtriya Krishi Vikas Yojana (RKVY) to make emergent interventions. In addition, the states are also allowed to use 10% of the allocations under Centrally Sponsored Scheme (CSS) as flexi-fund.  This reserve will enable the State Governments to make meaningful intervention immediately, if needed.

5.         Review meetings with 18 agriculturally important states were held by the DAC on June 2^nd and 3^rd of 2015.  An assessment of inputs and seeds primarily for a rain-deficient eventuality has been made.  The Department has adequate quantities of short and medium duration varieties of different crops.  The quantity available for Kharif 2015, for various crops is 109.45 lakh quintals.

Further, the department has been operating ‘National Seed Reserve (NSR)’ scheme with participation of 22 agencies including National Seed Corporation (NSC), State Seed Corporations (SSCs) and a few state departments of Agriculture.  Under NSR, the quantity of short and medium duration varieties for crops available is 1,78,892 quintals and for North Eastern states, it is 30,350 quintals.

6.         Frequent reviews and monitoring:

6.1.      This Ministry has four standing interventions for 2015 Kharif season to monitor status of monsoon, crop production and inputs with particular reference to seeds.  These are:

i.                     Weekly review of Kharif production programme as part of Senior Officers Meeting (SOM) held every Monday by the Secretary, DAC.

ii.                   Weekly Crop Weather Watch Group (CWWG) meeting held every Friday by the Economic & Statistical Advisor (ESA).

iii.                  Weekly video-conference with the states every Tuesday to review the input status including seeds and fertilizer. 

iv.                 Senior Officers of the department at the level of Joint Secretary have been nominated as nodal officers, with responsibility for 2-3 states each.  They keep in touch with the states on a regular basis.

6.2.      The DAC has nominated an Additional Secretary (Mr. Raghvendra Singh) as ‘Central Drought Relief Commissioner’.

7.         A meeting with all concerned departments was chaired by Secretary DAC on May 21, 2015.  The representatives of the Ministries/Departments of Water Resources, Land Resources, Power, Drinking Water, Food as also IMD, CWC etc. participated.  They were all requested to update contingency plans to meet shortfall in monsoon.  They were also requested to issue instructions to all states for advance preparations.

8.         A Committee of Secretaries (CoS) meeting was organised under the chairmanship of the Cabinet Secretary on June 2, 2015 with all concerned Ministries / Departments participating in it.  The Cabinet Secretary reviewed the arrangements and status of contingency plans made by concerned Ministries including Water Resources, Power, Land Resources, Rural Development, Animal Husbandry, etc.  He has advised all concerned to be in a state of readiness to meet a contingent situation effectively, if it arises, as a result of lower than normal rainfall.  The status of readiness is as follows:-

8.1            India Meteorological Department, M/o Earth Sciences- The Agricultural Meteorological Division, Pune, in coordination with the respective state agriculture departments, has been issuing weekly ‘Agro-met Advisory Bulletins’ from 17 agro-meteorological advisory services units located at Meteorological Centres / Regional Meteorological Centres in the states.                                                   

8.2              M/o Water Resources and CWC – CWC shall ensure that water is made available to crops in rain-fed areas, in time, from the reservoirs depending upon availability.  MOWR is preparing contingency plans, so that, water for irrigation can be made available for protective irrigation in case of shortfall in rainfall during critical period of crop growth. MOWR has been requested to direct states to make contingency plans for each of the reservoir/river basin and monitor its implementation. Special attention will be given to states with reservoir levels below normal.

8.3              M/o Power- The Ministry shall ensure uninterrupted/adequate power supply across the country and meet demand for additional power in case of shortage arising from monsoon failure in the catchment areas of the reservoirs.  The Ministry will also put in place contingency plans.  The Ministry will supply extra power to States with deficient/scanty rainfall, so that protective irrigation through electric pump sets can be ensured. Inter-regional transfer of power will also be considered in case of any contingency.

8.4              D/o Rural Development- Works under MGNREGA will be intensified in drought affected areas giving preference to water conservation/ harvesting related projects.

8.5              D/o Land Resources- has identified sites for check dams and water harvesting structures (WHSs) to be built and existing ones that need desilting. DOLR through IWMP has been implementing many schemes / projects that will aid drought proofing.

8.6              Ministry of Fertilizer- M/o Fertilizer will ensure adequate and timely availability of fertilizers, as per demand assessed, by DAC.

8.7              D/o Animal Husbandry, Dairying & Fisheries – The department will ensure arrangement for fodder supply and fodder seeds to meet contingency situation.

8.8                       D/O DARE/ICAR- ICAR has been helping the states in preparation of district contingency plans. It is helping in promotion of drought resistant varieties, and water conservation practices, which are region-specific through KVKs. Further, ICAR will be uploading state level advisory on different aspects of crop production, horticulture, livestock, fisheries etc.  This will be hosted on the ICAR website by June 10, 2015.

9.         Review of crisis management plan (CMP) for drought for the year 2015

A Crisis Management Plan (CMP) for drought 2015 has been in place and is available at the website of Dept. of Agriculture & Cooperation, Min. of Agriculture. The ‘Plan’ has been updated recently in consultation with stakeholder Ministries/Departments. The Hon’ble Minister for Agriculture has also requested all Chief Ministers, vide his letter dated 12.05.2015, to direct the officers concerned to expedite preparation of state level ‘Management Plan on Drought’.

10.  Around first week of July, based on review of actual rainfall status and if situation warrants, DAC will request CCEA to approve special measures  such as diesel subsidy scheme, enhancing ceiling on seed subsidy under various schemes, additional fodder production program and special interventions for saving horticulture crops.

11.       A review meeting to take stock of preparedness for a contingent situation  was organized at the level of the Hon’ble Minister for Agriculture   with all the departments of this Ministry as also other stakeholder-Ministries/Departments on June 5, 2015. Officials of Ministry of Agriculture, Agriculture Research and Education, Animal Husbandry, Dairy and Fisheries, Rural Development, Land Resources, Power, Fertilizers, Indian Metrological Department apart from National Disaster management Authority participated in the meeting and apprised the Agriculture Minister about the Action Plan being prepared by them to tackle any contingency arising out of deficient monsoon.

12.       As per IMD forecast, the most critical region in terms of deficiency in rainfall at 85% of LPA is going to be North West region, but it was noted with satisfaction that that this region is largely irrigated having least impact of rainfall deficiency. In addition a weather Company has forecasted a normal rainfall. Even then,  I would like to assure you, that this Ministry is completely geared up to meet any likelihood of drought, in case of a deficit rainfall, as per forecast by the IMD on June 2, 2015. 

SS/preparedness

LAC clarification not the only route to enhance border peace, says China

Without closing the option, China appeared lukewarm about restarting the clarification of the Line of Actual Control (LAC), despite the advocacy by Prime Minister Narendra Modi to revive the process which was stalled in 2005.

Instead, the Chinese side appeared to favour an elaboration of the “code of conduct” along the border areas to enhance “Peace and Tranquility” along the unsettled frontiers.

In a conversation with a visiting Indian think-tank and media delegation, Huang Xilian, a senior official in the Asia department of the Chinese foreign ministry, said in response to a question that, “Whatever we do in the border area, it should be constructive.”

He added “That means it should be (a) building block to that process of negotiations and not (a) stumbling block. If we find that the clarification of the LAC is a building block, then of course we should go ahead. But if we find that it could become a stumbling block, it could complicate further the situation, then, we have to be careful.”

China and India do not have a common perception of the alignment of the LAC, throughout its entire stretch of 4,086 kilometers, along the Sino-Indian border.

During his visit to China last month, Prime Minister Narendra Modi had strongly proposed the resumption of the clarification of the LAC. During his address at the Tsinghua University on May 15, the Prime Minister observed that “a shadow of uncertainty always hangs over the sensitive areas of the border region”. He added: “It is because neither side knows where the Line of Actual Control is in these areas. That is why I have proposed resuming the process of clarifying it. We can do this without prejudice to our position on the boundary question.”

Mr. Huang pointed out that the boundary negotiators from the two countries had “encountered some difficulties” in the previous edition of LAC clarification. We “tried to clarify some years ago but we encountered some difficulties which led to even complex situation. That is why I said whatever we do should make it more conducive for promoting peace and tranquility for making things more easier, not to make it things more complicated, the Chinese official observed.

Unlike India’s emphasis on LAC clarification, the Chinese side appeared to favour further exploration of a “code of conduct” regime along the border areas. “We can try to reach agreement on the code of conduct. And we still have quite some things to explore together, to make sure that there is not only one thing, but many things; we should try and seek a comprehensive approach to this.” Mr. Huang had earlier observed that the Chinese approach was to seek “some kind of comprehensive measures, not only one measure but comprehensive measures to control, to manage the border to ensure peace and tranquility along the border”.

The focus on the “code of conduct” fed into the Border Defence Cooperation Agreement (BDCA), signed between the two countries in October 2013. That agreement had directed the two sides “that they shall not follow or tail patrols of the other side in areas where there is no common understanding of the line of actual control in the India-China border areas”. It also pointed out that in case “a doubtful situation arises with reference to any activity by either side in border areas where there is no common understanding of the line of actual control, either side has the right to seek a clarification from the other side”.

Maggi Controversy

Culture:
Globalisation : Food culture change along with life styles.

Health :
disorders of Lead and Monophosphate

Public_Ad:
Food safety and standards authority of India

consumer forum

Food quality standards:
codex international

Maggi, Banned. And Oil, Eggs, Vegetables, Pulses?

Abheet Singh Sethi, June 6, 2015

• 64% of the loose edible oil sold in Mumbai is adulterated, according to a study conducted last year by the Consumer Guidance Society of India. The study tested 291 samples of sesame oil, coconut oil, groundnut oil, mustard oil, sunflower oil, cottonseed oil and soybean oil.


• Arsenic above “critical limits” was found in cereals, pulses, vegetables, roots and tubers; cadmium above similar criticality was found in cereals, fruits and curd, in a 2013 M.S. University of Baroda study. Both heavy metals are toxic to human beings.


• 28% of eggs sampled in Uttar Pradesh’s Bareilly, Dehradun and Izatnagar towns were contaminated with E. coli (effects include diarrhoea, urinary and respiratory infections and pneumonia) and 5% with multi-drug resistant salmonella bacteria (effects: diarrhoea, fever, cramps), according to this 2013 study by the Indian Veterinary Research Institute.


• More than half of all duck eggs–a local staple in Kerala–sampled in the prosperous town of Kottayam were contaminated with salmonella, according to this 2011 study.


• Nearly 69% of 1,791 milk samples in a nationwide study did not conform to Indian standards (though they weren’t necessarily unsafe). Milk, as IndiaSpend reportedearlier, is one of the most-commonly adulterated food items in India, followed by oil and eggs.

Source: FSSAI, Consumer Guidance Society of India, research

As you can see, we are surrounded by food that is contaminated, adulterated and does not meet Indian safety and packaging standards. What we have presented to you is only a sampling of recent studies on Indian foodstuff.

Why Maggi hit the headlines

Maggi two-minute noodles are only the latest to be found violative of food-safety standards. Maggi’s case–given its popularity–is playing out in a blaze of publicity, as more states ban the noodles and has now been withdrawn from the Indian market by its manufacturer Nestle India.

“The trust of our consumers and the safety of our products is our first priority. Unfortunately, recent developments and unfounded concerns about the product have led to an environment of confusion for the consumer, to such an extent that we have decided to withdraw the product off the shelves, despite the product being safe,” said an official statement by Nestle India.

“This is a very serious issue as it concerns the safety of consumers. Therefore, for the first time, the government has suo motu complained to the Consumer Commission to take cognisance of the matter on behalf of a class of consumers,” Consumer Affairs Minister Ram Vilas Paswan said.

The move comes after product samples analysed by Food Safety and Drug Administration (FDA), Uttar Pradesh were found three times above safe limits.

The permissible limit of lead in food items like Maggi is 2.5 parts per million (ppm),according to Food Safety and Standards (Contaminants, Toxins and Residues) Regulations, 2011. Maggi samples analysed by UP FDA were found to have lead concentration nearly seven times higher at 17.2 ppm, raising fears of possible lead poisoning among consumers.

Lead poisoning clearly poses serious health risks, and can lead to insomnia, anaemia, constipation and brain damage.

The findings of the Uttar Pradesh FDA prompted several states to similarly conduct tests on Maggi; Delhi, Uttarakhand, Gujarat, Jammu and Kashmir and Tamil Nadu have also temporarily banned Maggi sales. Other brands, such as Wai Wai Xpress Noodles, Reliance Select Instant Noodles, Smith and Jones Chicken Masala Noodles and Leong Hakka noodles have also now been banned in different states.

Since health is a state subject, states have their own FDAs to test if foodstuff adhere to safety regulations laid down by Food Safety and Standards Authority of India (FSSAI).

Lead isn’t only in food

But foodstuff isn’t the only thing that violates safety standards. The air you breathe, the water you drink, even your walls could hold the main toxin that Maggi noodles are suspected to contain.

Lead is also present in household paint.

A third of enamel paints analysed had lead concentration above 10,000 ppm, 111 times more than Bureau of Indian Standards (BIS) standards of 90 ppm, according to a recent study by Toxics Link, “Lead in Enamel Household Paints in India in 2015”.

The study tested 101 enamel paints, of which 32 paints revealed high lead concentrations. All 32 paints were made by small and medium enterprises.

Lead (and other carcinogenic heavy metals) has also been commonly found in everything from spinach in Delhi and Nagpur to brinjal, tomato and beans in West Bengal. Indeed, there are few vegetables that do not display lead contamination, primarily deposited from vehicular exhaust, as this 2013 study of carrot, radish, beet, cabbage and other vegetables in West Bengal revealed.

Unclear how MSG crept into Maggi

Besides lead, high levels of added monosodium glutamate (MSG), a taste enhancer, was also found in Maggi. MSG is widely used in what is called “Indian-Chinese” food.

MSG should not be added to “pastas and noodles (only dried products)”, according to Food Safety and Standards Rules, 2011.

Glutamate is one of the most common, naturally occurring non-essential amino acids, which is found in tomatoes, parmesan cheese, potatoes, mushrooms, and other vegetables and fruits.

MSG is “generally recognised as safe” by U.S Food and Drug Administration, though it is considered harmful in India.

Major complaints arising from MSG use include burning sensations of the mouth, head and neck, headaches, weakness of the arms or legs, upset stomach and hives or other allergic-type reactions with the skin.

Maggi is the most recognisable instant noodle brands in India, commanding a 70% share. This could justify the nationwide uproar against revelations of adulteration. This also raises fear of several other food items being adulterated.

Bottom line: India cannot keep pace with its toxins

Detection is crucial to counter the growing problem of food adulteration, but the country has not established enough testing laboratories.

India, as this IndiaSpend report shows, has only 148 food-testing laboratories.

This means, each laboratory serves 88 million people. China, by contrast, has one laboratory for every 0.2 million people.

The percentage of food samples found not conforming to FSSAI regulations increased from 12.77% in 2011-12 to 18.80% in 2013-14, a 6% increase over three years.

Source: FSSAI; Note: Data for FY 2012 to FY 2014 for 14 states/UTs only, data for FY 2015 is for first 6 months for all states/UTs

As the data show, it isn’t close to adequate. ■

(Sethi is an analyst with IndiaSpend.)

__________________________________________________________________

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Second Bi-monthly Monetary Policy Statement, 2015-16 Dr. Raghuram G. Rajan, Governor

Monetary and Liquidity Measures

On the basis of an assessment of the current and evolving macroeconomic situation, it has been decided to:

• reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.5 per cent to 7.25 per cent with immediate effect;
• keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liabilities (NDTL);
• continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as longer term repos of up to 0.75 per cent of NDTL of the banking system through auctions; and
• continue with overnight/term variable rate repos and reverse repos to smooth liquidity.

Consequently, the reverse repo rate under the LAF stands adjusted to 6.25 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 8.25 per cent.

Assessment

2. 

Since the first bi-monthly monetary policy statement of 2015-16 issued in April 2015, incoming data suggest that the global recovery is still slow and getting increasingly differentiated across regions. In the United States, the economy shrank in Q1 owing to harsh weather conditions, the strength of the US dollar weighing on exports and a decline in non-residential fixed investment. In the euro area, financial conditions have eased due to the European Central Bank’s (ECB) quantitative easing and a depreciating euro. There has, however, been some moderation in composite purchasing managers’ indices (PMI), economic sentiment and consumer confidence in April. In Japan, growth surprised on the upside in Q1, supported by private demand as business spending boosted inventories and personal consumption. 

For most emerging market economies (EMEs), macroeconomic conditions remain challenging due to domestic fragilities, exacerbated by bouts of financial market turbulence. China continues to decelerate in spite of monetary easing. The recent firming up of crude prices has reduced headwinds to growth for some energy exporters, while increasing them for importers. Even absent a decisive economic recovery or adverse geopolitical shocks, oil prices appear to be volatile.

3. Global financial markets have also been volatile, with risk-on risk-off shifts induced by changing perceptions of monetary policies in the advanced economies. Global currency markets continue to be dominated by the strength of the US dollar, with the G3 currencies reflecting the asynchronicity of their monetary policy stances. Volatility in global bond markets has increased with a number of factors at play: unwinding of European assets by investors due to the Greek crisis; rapidly changing expectations around the Fed’s forward guidance; sharp movements in crude prices; and market corrections due to changes in risk tolerance.

4. As anticipated, the Central Statistics Office has revised downwards its estimate of India’s gross value added (GVA) at basic prices for 2014-15 by 30 basis points from the advance estimates. 

Agriculture

Domestic economic activity remains moderate in Q1 of 2015-16. Agricultural activity was adversely affected by unseasonal rains and hailstorms in north India during March 2015, impinging on an estimated 94 lakh hectares of area sown under the rabi crop. Reflecting this, the third advance estimates of the Ministry of Agriculture indicate a contraction in foodgrains production by more than 5 per cent in relation to the preceding year’s level. Successive estimates have been pointing to a worsening of the situation, with the damage to crops like pulses and oilseeds – where buffer foodstocks are not available in the central pool – posing an upside risk to food inflation. 

For the kharif season, the outlook is clouded by the first estimates of the India Meteorological Department (IMD), predicting that the southwest monsoon will be 7 per cent below the long period average. This has been exacerbated by the confirmation of the onset of El Nino by the Australian Bureau of Meteorology.

5. What is clear is that contingency plans for food management, including storage of adequate quantity of seeds and fertilisers for timely supply, crop insurance schemes, credit facilities, timely release of food stocks and the repair of disruptions in food supply chains, including through imports and de-hoarding, need to be in place to manage the impact of low production on inflation. Inflation control will also be helped by limiting the increase in agricultural support prices.

Industrial Production

6. Industrial production has been recovering, albeit unevenly. The sustained weakness of consumption spending, especially in rural areas as indicated in the slowdown in sales of two-wheelers and tractors, continues to operate as a drag. Corporate sales have contracted. The disappointing earnings performance could have been worse if not for the decline in input costs. 

Capacity utilisation has been falling in several industries, indicative of the slack in the economy. 

While an upturn in capital goods production seems underway, clear evidence of a revival in investment demand will need to build on the tentative indications of unclogging of stalled investment projects, stabilising of private new investment intentions and improving sales of commercial vehicles. 

In April, output from core industries constituting 38 per cent of the index of industrial production declined across the board, barring coal production. The sustained revival of coal output augurs well for electricity generation and mining and quarrying, going forward. 

There is some optimism on gas pricing and availability. The resolution of power purchase processes has to be expedited and power distribution companies’ financial stress has to be addressed on a priority basis. 

Some public sector banks will need more capital to clean up their balance sheets and support lending as investment revives.

Services

7. Leading indicators of services sector activity are emitting mixed signals. A pick-up in service tax collections, sales of trucks, railway freight, domestic air passenger and air freight traffic could augur well for transport and communication and trade. On the other hand, the slowdown in tourist arrivals, railway traffic and international air passenger and freight traffic could affect hotels, restaurants and some constituents of transportation services adversely. The services PMI declined in April 2015, mainly on account of slowdown in new business orders. Community and personal services are likely to be held back by the ongoing fiscal consolidation.

Inflation

8. In April, retail inflation measured by the consumer price index (CPI) decelerated for the second month in a row, supported by favourable base effects [of about (-) 0.8 per cent] that moderated the rise in the price index for the fourth successive month. 

food inflation

Food inflation softened to a contra-seasonal four-month low, with the impact of unseasonal rains yet to show up. Vegetables inflation continued to ease, along with that of other sub-groups such as cereals, oil, sugar and spices. On the other hand, protein items, especially milk and pulses, continued to impart upward inflationary pressures.

fuel inflation

9. Fuel inflation rose for the fourth successive month to a twelve-month high, driven by prices of electricity and firewood. Inflation in these components was accentuated by base effects – the recent price uptick coming on top of muted increases a year ago. Inflation excluding food and fuel rose marginally. House rent, education, medical and transport expenses were among the major drivers of inflation in this category. Rural wage growth, although still moderate, picked up. Inflation expectations remain in high single digits, although they may adapt further to current low inflation. Yet, both input and output price pressures remain muted as reflected in the Reserve Bank’s industrial outlook survey. Purchasing managers’ indices also corroborate these developments.

Liquidity

10. Liquidity conditions eased in April 2015 after the tightness in the second half of March 2015 on account of advance tax outflows and financial year-end behaviour of banks. The Reserve Bank’s liquidity management operations were reversed in view of the improvement in liquidity conditions through April. During May, however, rapid increases in currency in circulation and a build-up of government balances resulted in liquidity conditions tightening again. Accordingly, fine tuning operations of varying tenors were conducted, besides the regular overnight repo at fixed rate and 14-day variable rate repo auctions. These injections helped meet the frictional liquidity requirements. In May, the average daily net liquidity injected through LAF fixed rate repos, besides regular 14-day variable rate repos, additional variable rate repos and MSF, was ₹1031 billion as compared with ₹819 billion in April. As a result, weighted average money market rates shadowed the policy rate. Longer term interest rates, particularly gilts, hardened in early May on international cues but eased in the second half of the month, particularly after the issuance of the new benchmark bond.

Foreign Trade

11. Merchandise export growth has weakened steadily since July 2014 and entered into contraction from January 2015 through April, with a recent shrinking of even volumes exported. The deterioration in export performance affected economies across Asia as global demand fell and the fall in commodity prices impacted terms of trade for commodity exporters. From December 2014 onwards, merchandise import growth also turned negative, led by a sharp decline in the volume of oil imports as inventory build-up by refineries subsided. Gold imports spiked in the month of March and remained elevated in April owing to festival demand and regulatory relaxations. Notably, the volume of imports has been recording increases, despite the value decline. Given these developments, the reduction in the current account deficit resulting from the sharp decline in oil prices has begun to reverse, though the size of the deficit is expected to be contained to about 1.5 per cent of GDP this year. Net exports are, therefore, unlikely to contribute as much to growth going forward as they did in the past financial year. Consequently growth will depend more on a strengthening of domestic final demand. While portfolio and direct foreign investment flows were buoyant during 2014-15, with net foreign direct investment to India at US$ 36.6 billion and net portfolio inflows at US$ 41 billion, the year 2015-16 has begun with net portfolio outflows in the wake of a reduction in global portfolio allocations to India. Foreign exchange reserves are around US$ 350 billion, providing a strong second line of defence to good macroeconomic policies if external markets turn significantly volatile.

Policy Stance and Rationale

12. 

• Banks have started passing through some of the past rate cuts into their lending rates, 
• headline inflation has evolved along the projected path, 
• the impact of unseasonal rains has been moderate so far, 
• administered price increases remain muted, and 
• the timing of normalisation of US monetary policy seems to have been pushed back. 

With low domestic capacity utilization, still mixed indicators of recovery, and subdued investment and credit growth, there is a case for a cut in the policy rate today.

13. Yet, of the risks to inflation identified in April, three still cloud the picture. 

1. First, some forecasters, notably the IMD, predict a below-normal southwest monsoon. Astute food management is needed to mitigate possible inflationary effects. 
2. Second, crude prices have been firming amidst considerable volatility, and geo-political risks are ever present. 
3. Third, volatility in the external environment could impact inflation. 

Therefore, a conservative strategy would be to wait, especially for more certainty on both the monsoon outturn as well as the effects of government responses if it turns out to be weak. 

With still weak investment and the need to reduce supply constraints over the medium term to stay on the proposed disinflationary path (to 4 per cent in early 2018), however, a more appropriate stance is to front-load a rate cut today and then wait for data that clarify uncertainty. Meanwhile banks should pass through the sequence of rate cuts into lending rates.

14. Assuming reasonable food management, inflation is expected to be pulled down by base effects till August but to start rising thereafter to about 6.0 per cent by January 2016 – slightly higher than the projections in April. Putting more weight on the IMD’s monsoon projections than the more optimistic projections of private forecasters as well as accounting for the possible inflationary effects of the increases in the service tax rate to 14 per cent, the risks to the central trajectory are tilted to the upside (Chart 1).

15. Reflecting the balance of risks and the downward revision to GVA estimates for 2014-15, the projection for output growth for 2015-16 has been marked down from 7.8 per cent in April to 7.6 per cent with a downward bias to reflect the uncertainties surrounding these various risks (Chart 2).

16. Strong food policy and management will be important to help keep inflation and inflationary expectations contained over the near term. 

Furthermore, monetary easing can only create the enabling conditions for a fuller government policy thrust that hinges around a step up in public investment in several areas that can also crowd in private investment. 

This will be important to relieve supply constraints and aid disinflation over the medium term. 

A targeted infusion of bank capital into scheduled public sector commercial banks, especially those that implement concerted strategies to clean up stressed assets, is also warranted so that adequate credit flows to the productive sectors as investment picks up.

17. The third bi-monthly monetary policy statement will be announced on August 4, 2015.

Alpana Killawala
Principal Chief General Manager