India cuts duties and bans rice exports

New Delhi: India has scrapped import duties on crude edible oils and banned exports of non-basmati rice amid a raft of measures to stem rising inflation, which hit a 14-month high in mid-March and has alarmed policymakers.

Surging prices of essentials such as wheat, sugar, edible oils and steel have drawn howls of protest from the government's communist allies as well as the main opposition Bharatiya Janata Party.

Many of the drivers - rising demand in developing nations, severe weather, biofuel production, hot commodity markets - are global, but for India's governing coalition the head-aches are very much local with nearly a dozen states going to the polls this year and a general election due by May 2009. After four hours of debate with ministerial colleagues, Finance Minister P. Chidambaram said import duty on all edible oil in crude form would be slashed to zero per cent.

Duty on maize imports was cut to zero from 15 per cent, while a ban on exports of pulses was extended for 12 months. All exports of non-basmati rice had to stop, the minister said.

Steel

While the cabinet committee on prices deferred a decision on tackling steel and iron ore prices as the steel minister was overseas, the minister cautioned firms not to hike rates.

"There are some reports that steel producers are planning to raise prices. I would on behalf of the government advise them to observe restraint," Chidam-baram said.

Hours before the ministers met, Central Bank Governor Y.V. Reddy said in Mumbai that he was ready to act against what he described as "unacceptably" high inflation if necessary, but any steps needed careful thought.

Indian federal bond yields rose to their highest in more than five months on Monday on expectations a surge in inflation will lead to a monetary policy response from the central bank.

Before the latest fiscal moves, commentators said monetary policy tools could also work to an extent but tackling food price inflation required a long-term strategy while the politics demanded a quick fix.

Serious issue

"I think they have not realised the enormity of food price inflation. It affects landless labourers, the urban poor and the middle class," said political analyst Mahesh Rangarajan.

"For the Congress party, food price inflation could put a dampener on the farm loan waiver. It's a very serious issue."

The Congress party-led government made a $15 billion scheme to write off the debts of millions of small farmers the centrepiece of its budget presented late in February.

Chidambaram said last Friday the government was determined to take all measures including fiscal, monetary and supply side moves, to moderate inflation, and was ready to accept lower growth to trim prices.

Annual wholesale inflation - the most widely watched measure - jumped to 6.68 per cent in mid March, largely driven by foods and manufactured product prices and econ-omists expect it to remain high for a few months.

The government's communist allies on Sunday stepped up the pressure, setting an April 15 deadline for it to begin steps to bring down prices or face protests.

See also Page 51