India raised diesel prices about 9 percent on Friday after months of delay, a politically unpopular move that will add to inflationary pressure, but also eases the government’s subsidy burden and could bolster its image among wary investors.
“This is the only window they have for any cutting of subsidies. By the end of the year they will be in [state] election mode,” political analyst Mahesh Rangarajan said.
Since it was first elected in 2004, Indian Prime Minister Manmohan Singh’s government has often refrained from pushing through tough reforms in favor of pleasing its predominantly rural voter base.
Persistently high inflation as well as the government’s handling of a spate of corruption scandals has led to what many critics describe as policy paralysis in New Delhi.
With galloping spending and slowing growth, New Delhi must reassure investors fretting over political and bureaucratic delays over major projects that it can run the economy and retain voter support.
Diesel will now cost just over 41 rupees per liter in the capital after the government panel raised prices by a record 3.4 rupees per liter including local taxes. It also raised kerosene and cooking gas prices.
“The inflationary implications of the diesel price hike are unavoidable. Broadly, with inflation currently at around 9 percent, the hike in prices should take the WPI [wholesale price index] into double digits again and keep it there for a while,” said Rupa Rege Nitsure, chief economist at Bank of Baroda.
The increases, announced by Indian Oil Minister S. Jaipal Reddy, were roughly in line with expectations.
Taken together, they will -directly add about 55 basis points to headline inflation, said Yes Bank economist Shubhada Rao in Mumbai, who expects another 25 basis points to 50 basis points of interest rate increases by India’s central bank, which has already raised rates 10 times since March last year despite the risk to growth.
Diesel accounts for 40 percent of petroleum product demand in India and is the most widely used transport fuel. It powers tractors and irrigation pumps for farmers in one of the world’s biggest producers and consumers of grains and sugar.
Lifting prices is politically fraught.
“I am sandwiched between economists on the one hand and populists on the other hand,” said Reddy, an advocate of price rises, following the meeting. “Political problems will always be there and economic problems do not wait for solution of so-called political crises.”
Since the government agreed in principle to lift fuel costs a year ago, international crude prices have soared 33 percent, swelling the money it has to spend on subsidizing fuel prices for a country with 500 million people living in poverty.
However, world oil prices fell 6 percent on Thursday after major consuming countries announced an emergency release of stocks, only the third time ever, and dropped further on Friday.
With inflation in India above 9 percent and domestic fuel costs up nearly 13 percent this year, raising fuel prices will immediately hit the fractious coalition’s core voters among the poor who live on less than the cost of 2 liters of diesel a day.
Petrol prices, which largely affect more affluent Indians, have gone up about 23 percent since they were liberalized a year ago.
CHIP RACE: Three years of overbroad export controls drove foreign competitors to pursue their own AI chips, and ‘cost US taxpayers billions of dollars,’ Nvidia said China has figured out the US strategy for allowing it to buy Nvidia Corp’s H200s and is rejecting the artificial intelligence (AI) chip in favor of domestically developed semiconductors, White House AI adviser David Sacks said, citing news reports. US President Donald Trump on Monday said that he would allow shipments of Nvidia’s H200 chips to China, part of an administration effort backed by Sacks to challenge Chinese tech champions such as Huawei Technologies Co (華為) by bringing US competition to their home market. On Friday, Sacks signaled that he was uncertain about whether that approach would work. “They’re rejecting our chips,” Sacks
Taiwan’s exports soared 56 percent year-on-year to an all-time high of US$64.05 billion last month, propelled by surging global demand for artificial intelligence (AI), high-performance computing and cloud service infrastructure, the Ministry of Finance said yesterday. Department of Statistics Director-General Beatrice Tsai (蔡美娜) called the figure an unexpected upside surprise, citing a wave of technology orders from overseas customers alongside the usual year-end shopping season for technology products. Growth is likely to remain strong this month, she said, projecting a 40 percent to 45 percent expansion on an annual basis. The outperformance could prompt the Directorate-General of Budget, Accounting and
NATIONAL SECURITY: Intel’s testing of ACM tools despite US government control ‘highlights egregious gaps in US technology protection policies,’ a former official said Chipmaker Intel Corp has tested chipmaking tools this year from a toolmaker with deep roots in China and two overseas units that were targeted by US sanctions, according to two sources with direct knowledge of the matter. Intel, which fended off calls for its CEO’s resignation from US President Donald Trump in August over his alleged ties to China, got the tools from ACM Research Inc, a Fremont, California-based producer of chipmaking equipment. Two of ACM’s units, based in Shanghai and South Korea, were among a number of firms barred last year from receiving US technology over claims they have
BARRIERS: Gudeng’s chairman said it was unlikely that the US could replicate Taiwan’s science parks in Arizona, given its strict immigration policies and cultural differences Gudeng Precision Industrial Co (家登), which supplies wafer pods to the world’s major semiconductor firms, yesterday said it is in no rush to set up production in the US due to high costs. The company supplies its customers through a warehouse in Arizona jointly operated by TSS Holdings Ltd (德鑫控股), a joint holding of Gudeng and 17 Taiwanese firms in the semiconductor supply chain, including specialty plastic compounds producer Nytex Composites Co (耐特) and automated material handling system supplier Symtek Automation Asia Co (迅得). While the company has long been exploring the feasibility of setting up production in the US to address
RSS