Inflation dip fails to mask worry

As per chief economic adviser Kaushik Basu inflation was expected to peak at 10 per cent in August but decline thereafter — which more or less ties in with the RBI’s forecast that it would stay around the current levels of just over 9 per cent at least till the end of the second quarter which ends on September 30.

Basu’s statement came after the CSO authorities announced that headline inflation had dipped to an eight-month low of 9.22 per cent in July as the rate of price rise in food articles and petro-products had eased though pressure remained on manufactured items.

In addition, overall inflation figure for May this year was revised upward to 9.56 per cent from the provisional estimate of 9.06 per cent.

However, finance minister Pranab Mukherjee said the inflationary pressures could ease because of the strong monsoon. He added that the government would take steps to cool inflation

The RBI has raised its key policy interest rate – the repo – 11 times since March last year to beat down on inflation.

Last month at its first quarter review of its monetary policy, the RBI said inflation would hover around current levels at least until the end of the second quarter, which ends on September 30. It expects inflation to go down to 7 per cent by the end of the fiscal on March 31 next year.

The central bank had raised its forecast for inflation by the end of the year by a full percentage point from its May forecast of 6 per cent.

In July, prices of food articles went up 8.19 per cent year-on-year, which is lower than the 8.38 per cent inflation recorded in June.

Inflation in overall primary articles, which have a share of over 20 per cent in the WPI basket, stood at 11.30 per cent in July, down from 12.22 per cent in June.

However, prices of manufactured products, which have a weight of around 65 per cent in the WPI basket, went up 7.49 per cent year-on-year in July.

Employment onus on India

India will need to generate at least 5.5 crore additional jobs by 2015 if it wants to maintain the current ratio of employed people to total population, a study done by Crisil Research said today.

The study, Employment in India — Uneven and Weak, said this number of 5.5 crore would be twice the number of jobs created during 2005-10 and that creating these jobs would pose a challenge without adequate policy support.

While the current ratio of employed people to the total population stands at 39 per cent, the number of 5.5 crore also comes after accounting for many people employed today either retiring or losing their jobs.

According to the study, despite higher economic growth in the second half of 2000s, the country has been unable to generate sufficient number of jobs in manufacturing and services. For instance, the GDP growth increased to 8.6 per cent during 2005-10 from 6 per cent during 2000-05, but the net addition to jobs remained almost flat at around 2.7 crore during these two periods.

“While net additions to jobs during the second half of the 2000 decade have been higher than the much-discussed two million numbers, this is clearly not enough to ensure inclusive growth,” it said.

Crisil said if the country wanted a solution in this regard, it should look at other countries, including China. The study noted large-scale labour-intensive manufacturing units are a rarity in India, since the real cost of employing labour is high.

Moreover, it is also virtually impossible for a manufacturing company with more than 100 employees to fire any employee even if it is facing bankruptcy. Therefore, demand for labour has not increased fast enough in manufacturing.

However, in the service sector, particularly in high-skilled services such as financial intermediation and business services, there is a shortage of skilled labour that is constraining job creation.

DLF penalty in Gurgaon apartment case

The Competition Commission of India (CCI) today slapped a Rs 630-crore penalty on real estate giant DLF for trampling on the rights of apartment allottees — the single-largest amount slapped by any regulatory watchdog in the country. DLF has been accused of ripping off those who bought into Belaire — a tony, high-rise condominium in Gurgaon. The company has been charged with unilaterally changing the scope of the project midway, raising money from clients without statutory approvals and denying customers the right to equitable compensation while slipping on delivery schedules. The commission, which formally started work only last year, upheld the charge that DLF had abused its position of dominance in the country’s real estate market by foisting provisions in the buyers’ agreement that were loaded against its clients. The commission chose an interesting way to decide on the penalty. It calculated the penalty at 7 per cent of the average turnover of DLF in the three preceding years. The average for the three years between end-March 2009 and 2011 was estimated at Rs 9,006.27 crore. Seven per cent of this sum came to Rs 630 crore. The CCI had imposed a penalty for similar abuse of market dominance on the National Stock Exchange a month ago. However, the penalty then was only Rs 5 crore. This is a hefty penalty and a strong statement from CCI. The Belaire project was floated in August 2006 and initially supposed to have five towers of 19 floors each with a provision for 368 residential units. The project, spread over 6.6 acres, was to have been completed in 36 months. The apartments — each costing well over Rs 2 crore — aren’t likely to be handed over before October this year. Without consulting the apartment allottees, DLF arbitrarily raised the number of floors at Belaire to 29 from 19, which inordinately delayed the project. The numbers of floors were raised by compressing the common area. The allottees were denied the right to claim any reduction in the price on that account. DLF also included in the buyers’ agreement Clause 32 that permitted it to “abrogate all that has been promised to the allottee”. This clause allowed DLF to amend or change annexure to the buyers’ agreement. The abuse of its dominant position in the real estate industry — an aspect covered by clause 4 of the Competition Act - became a nub of contention. DLF argued that there were many competitors in the market and it, therefore, could not be accused of abusing its dominance. The commission, however, used a variety of statistics and assertions that DLF itself had made in several documents, including its annual report, to establish that it straddled the totem pole in the real estate business. The DLF stock plunged almost 6 per cent to Rs 189 on the Bombay Stock Exchange yeterday.