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Impact of Rupee Appreciation and Inflation on
Indian
Textile and Garment Industry
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Ms. Gulnar Sharma
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percent in the 12 months to July 5, higher than previous week's figure of 11.89 percent, government
In the fuel, power, light and lubricants group, there was a decline in prices of LPG but the prices of
aviation turbine fuel (ATF), furnace oil, light diesel oil and naphtha rose on the back of rising crude oil
prices.
In the manufactured products category, food products showed a decline of 0.5 percent
but textiles
and chemicals & chemical products rose by 0.1 percent and 0.5 percent respectively.
What is most encouraging is that the annual inflation rate for the group of 30 essential commodities
declined to 5.74 percent from 5.98 percent in the week ended June 28. Prices of commodities like food
grains, pulses, edible oils, vegetables, dairy products and some other commodities, including
The WPI is India's most closely watched cost-of-living monitor as unlike the consumer price index
(CPI), which is published monthly, the WPI covers greater number of products in its computation and
is published weekly.
Inflation rate is expected to high in double-digit figure for a few more months before
moderating.
Analysts have blamed India's high inflation on high oil and food prices globally and feel
that
inflationary pressures would continue for some time.
"It is slightly below expectations but it doesn't change the fact that inflation pressures are still strong,
and clearly the trend in revisions still remains worrying. In all, it is encouraging but not something
that gives a lot of comfort," said Vikas Agarwal, research head, JP Morgan Chase, Mumbai.
"You need to see more such trends before one can convincingly say that we have seen
the worse
To tame inflation, the government has announced a slew of fiscal measures like scrapping import
duty on crude edible oils, banning export of non-basmati rice and pulses, and banning futures
trading in essential commodities like rubber, chana, potato and soya, even as it urged steel and
However, the global investment banker Barclays Capital has warned in a report that India's inflation
could surge to 17 percent by September as the government is likely to hike fuel prices between 10 and
However, think tank Center for Monitoring Indian Economy (CMIE) said in its monthly review on
Thursday that India's economy could grow at 9.5 percent in the current fiscal year, boosted by the
industry and services sector that would grow at 11.4 percent and 10.6 percent respectively.
International Monetary Fund or IMF has also revised its projections, saying, Thursday, that India's
economy would grow at 8 percent in 2008. IMF earlier estimated India's economic growth at 7.9
NEW DELHI: Costlier food items, such as fruits, vegetables and milk, pushed the wholesale
price-based inflation to 12.63% for the week-ended August 9, from 12.44% in the previous week.
The inflation stood at 4.24% in the corresponding week of the previous year.
While Masur prices rose 3%, tea, moong and gram prices increased 2% and milk was up 1%
over the last week. Overall index for primary food articles, which has weightage of 22.02% in
the WPI, rose by 0.3% in the week ended August 9. Inflation stood at 12.44% (provisional) a
week ago. Also, in keeping with the trend of final inflation coming higher than provision
estimate, inflation for the week ended June 14, 2008 has been revised to 11.80% from 11.42%.
Economists feel inflation could go up to 13.5% before it starts to come down.
With the rising inflation an interest rate hike of 25 basis points is not being ruled out in the
October monetary policy review. Experts feel that the task of striking a balance between rising
inflation and growth had got much tougher for the central bank.
"Prices of essential commodities, which include food grains, pulses, edible oils, vegetables, dairy
products, kerosene, soap and safety matches, have more or less stabilised," a finance ministry
statement said. It said that in the case of the primary articles group, the annual point-to-point
"However, out of 98 articles, 17 articles have shown a decline in prices as compared to August 2,
2008. These included rice, maize, urad and arhar, sunflower, linseed and niger seed, raw rubber,
cotton, potatoes, eggs, dry chillies and eggs. Another 56 articles have shown no increase in
prices," it said.
"Inflation may have peaked. There is some softening in commodity prices. Rice and wheat
production is expected to be good although pulses may see some pressure. A possibility of rate
hike by 25 bps is not ruled out. But, now the task of balancing between inflation and growth will
Index of manufactured products, which has the highest weight of 63.75% in WPI, rose by 0.2%
during the week on account of higher prices of some edible oils, textiles items, paper and rubber
items. The index for manufactured food products group rose by 0.1% due to higher prices of
Prices of other edible oils, however, declined. The textiles sector, however, continues to see
rapid increase. Rise in prices of cotton yarn-cones by 8%, polyester staple fibre by 7%, mixed
fabrics and cotton grey cloth & canvas by 6% each, other cotton yarn by 5% fuelled a rise in
index for textiles group, which rose 1.6% in the week under review. Higher prices of PVC fitting
& accessories, which were up by 13%, as also cement contributed to the rise in prices of
manufactured products.
HDFC Bank chief economist Abheek Barua feels the inflation peak may be in sight.
"The rise in inflation was in line with expectation. It may rise further on account of the base
effect and then come down. However, some surprises because of the failure in catching data on
time could play the spoil sport. Further, monetary tightening is not completely ruled out but
when globally central banks are going in for expansionary stance, it would be difficult to go in