The Telegraph
Since 1st March, 1999
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Price war with steel-slash sword

New Delhi, Aug. 20: As inflation nudged up to the 8 per cent mark, the government took another of its price rise-busting steps, slashing import duties on steel in an attempt to collar the monster.

Today’s announcement comes after about 10 days of planning by the Congress-led government which announced its first tranche of measures to rein in inflation on Wednesday when it slashed duties on petro products.

The government will sacrifice revenue of about Rs 305 crore because of the steel duty cuts.

As part of the duty revisions announced today by finance minister P. Chidambaram, customs duty on ships broken up for steel scrap has been slashed to 5 per cent from 15 per cent and that on imported non-alloy steel from 10 per cent to 5 per cent. Import duty on defective or scrap steel, used by re-rollers and foundries to make steel bars for construction or for making products like bicycles, has been brought down to zero.

The announcements received the stamp of authority at a meeting of the cabinet committee on prices on Thursday where Chidambaram told colleagues that more steps might have to be taken before inflation is actually tamed.

Besides the key concern areas — oil and steel prices which affect all sectors of the economy — the committee has been bothered about the possibility of increase in prices of other commodities such as oilseeds and sugar.

Adding to the worries of the government is a move by truckers to go on strike from tomorrow, protesting against the imposition of service tax which was proposed in the budget.

A last-minute clarification by the finance minister that the service tax proposed in the budget could only apply to booking agents, and not truckers, does not seem to have helped matters and truckers remain adamant about going on strike.

Prices of vegetables, especially onions, as well as certain drugs manufactured only in western India are expected to skyrocket. The government plans to set up a control room in Delhi which will negotiate with the truckers and find ways to ferry essential goods.

The government is also contemplating the possibility of allowing interest rates to slowly rise so as to suck out excess money from the economy, a traditional way of cooling down prices. The RBI is keen to allow this as its top brass believe that real interest rates (interest rate minus inflation), which today stand at a negative 2 per cent, should be around 2.5 per cent.

North Block does not want any sudden rate hikes as it could hit its own borrowing programme as well as the industry’s which is slowly reviving.

Politically, high inflation rates can mean trouble for any government. Those like pensioners with fixed incomes are badly affected. For an alliance which will face electoral tests in four key states soon, such a situation could spell doom.

The current high was fuelled by spiralling oil and vegetable and fruit prices. Government officials expect food prices to soften now that the monsoon, though late, has hit most parts of the country.

But the problem for the government is that global oil prices, which it cannot contain, are on a roll. Oil prices have raced to fresh highs with US crude approaching $49, driven by escalating violence in Iraq and unabated demand growth from China and India.

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