Posts Tagged ‘WPI’

Equity News 27th September – 1st October

DOMESTIC NEWS

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Economy

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·Food inflation, as measured by the Wholesale Price Index (WPI), rose to 15.46 per cent for the week ended September 11, primarily due to rise in prices of potatoes and onions. Food inflation stood at 14.77 per cent during the corresponding week in 2009 and at 15.1 per cent during the previous week ended September 4.
Realty/ Construction ·IVRCL Infrastructures & Projects Ltd (IVRCL) has bagged orders worth `750
crore for four laning and improvement of Karanji-Wani-Ghuggus – Chandrapur Road Maharashtra State Highway – 6&7 in Yavatmal and Chandrapur district on DBFOT basis.


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Cement

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·J K Lakshmi Cement would invest `1,800 crore over the next three-four years to double its cement production capacity to 10 million tonnes.

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Oil & Gas

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·GAIL India will make capital investment of around `40,000 crore ($8.8 billion) by 2014-15, mainly to expand its pipeline network and boost petrochemicals capacity.

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Telcommunication

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·Kavveri Telecom has bagged a contract worth `30 crore from one of the telecom operators for the supply of equipment and antennas. The order is to be completed within a year.

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·Bharti announced its entry into the fast-growing mobile handset business as group firm Beetel launched eight handsets in the price range of `1,750- 7,000. Bharti is India’s number one mobile service provider with over 140 million subscribers and the company recently acquired Zain Telecom in Africa to expand its footprint in 16 countries.

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Capital Goods

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·BHEL said it is in talks with SAIL and Vizag Steel to tie up for manufacturing high grade steel, while Korean steel maker Posco may join the proposed joint venture company as a technology partner.

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·Bharat Heavy Electricals Ltd has got a contract worth `2,665 crore ($583 million) to set up a 1,200 megawatts coal-fired power plant at Chhattisgarh in central India.

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Paint

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·Berger Paints India Limited has proposed to set up a paints manufacturing complex at Hindupur in Anantapur district of Andhra Pradesh comprising three units and involving an investment of around `350 crore.

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Pharmaceuticals

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·Aurobindo Pharma has received USFDA approvals for ampicillin and.sulbactam injections in bottle, single-use vial and bulk pack formats.

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Ampicillin and sulbactam is a sterile semi-synthetic penicillin product falling under the anti-infective segment.

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FMCG

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·Procter & Gamble India (P&G) is set to bring in one of its biggest global brands–Wella hair colour—as it looks to strengthen its health and beauty business in India. This is the first time that the detergents-to-diaper maker will enter the Indian hair colour market, which is dominated by L’Oreal India’s L’Oreal Excellence Crème and Garnier, and Godrej Consumer Products.

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INTERNATIONAL NEWS

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·US Fed left policy rates unchanged but appears to have begun preparations for additional easing-possibly at the post-election November FOMC. The fed funds target range was left unchanged at a range of zero to 0.25 percent and, again, the Fed stated that this rate is expected to remain low for an “extended period.”

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·US Housing starts showed unexpected strength in August with even the single-family component increasing. Housing starts in August jumped 10.5 percent after rising a modest 0.4 percent in July. The August annualized pace of 0.598 million units clearly topped analysts’ expectations for 0.550 million units and is actually up 2.2 percent on a year-ago basis. The gain in August was led by a 32.2 percent surge in multifamily starts, following a 36.0 percent increase in July. The single-family component rebounded 4.3
percent after dipping 6.7 percent in July.

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·US Existing home sales rose 7.6 percent in August to a 4.130 million annual rate, up substantially from July’s 3.840 million rate (revised from 3.830).

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Gains swept regions with supply coming down a bit, at a still extremely swollen 11.6 months. Prices are softening, down 1.9 percent to a median $178,600. The gain in sales was predicted by the pending homes sales report released early in the month, data that popped higher.

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PRICE INDEX “The Score Card”

The price index is an indicator of the average price movement over time of a fixed basket of goods and services. The objective is to monitor & measure the retail, wholesale or producer prices etc.

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Base Year for calculation: Presently WPI series compiled are — Assam (base 1993-94), Bihar (1991-92), Haryana (1980-81), Karnataka (1981-82), Punjab (1979-82), U.P.(1970- 71) and West Bengal (1980-81). The National Statistical Commission has recommended that base year should be revised every five year and not later than ten years. Step-wise introduction to compilation of WPI: Like most of the price indices, WPI is based on “Laspeyres formula” for reason of practical convenience. These steps are discussed in detail in the following sections:

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1) Concept of Wholesale Prices: It is the rate at which relatively large transaction of purchase, usually for further sale, is effected. The price pertaining to bulk transaction of agricultural commodities may be farm harvest prices, or prices at the village mandi /market of the Agricultural Marketing Produce Committee/ procurement prices, support prices.

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2) Choice of Base Year: The criteria for the selection of base year are (i) a normal year i.e. a year in which there are no abnormalities in the level of production, trade and in the price level and price variations, (ii) a year for which reliable production, price and other required data are available and (iii) a year as recent possible and comparable with other data series at national and state level.

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3) Selection of Items, Varieties/ Grades, Markets: The importance of an item in the free market will depend on its traded value during the base year. In agriculture commodities the selection of new items in the basket is done on the basis of increased importance in wholesale markets. In the existing WPI series, items, their specifications and markets have been finalized in consultation of with the Directorate of E&S (M/O Agriculture), National Horticulture Board, Spices Board,Tea board, Coffee Board and Rubber Board, Silk Board, Directorate Of Tobacco, Cotton Corporation of India etc.

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4) Derivation of Weighting Diagram: Weights of Agriculture commodities: These weights are based on the Marketed value (MV) arrived at by multiplying Marketed Surplus Ratio (MSR) to the estimates of Value of Production (VOP) of agricultural commodities.

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5) Collection of Prices: The collection of base prices is done concurrently while the work on finalization of index basket is on. Therefore, price collection is normally done for larger number of items pending finalization. Once the basket is ready, current prices are collected only as per the final basket from the designated sources. Weekly prices need to be collected for pre-determined day of the week. For the current series prices are quoted on the basis of the prevailing prices of every Friday.

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6) Treatment of prices collected from open market & administered prices: The issue of using administered prices for index compilation is resolved by taking into account appropriate ratio between the levy and non-levy portions. Where these ratios are not available, the issues can be resolved through taking the appropriate number of price quotations of the administered prices and the open market prices after periodic review.

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7) Classification structure: The classification is based on NIC renders the WPI data amenable to comparison with the Index of Industrial Production (IIP) and National Income data.

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8) Methodology of Index Calculation: In the first stage, once the price data are scrutinized, price relative for each price quote is calculated. Price relative is calculated as the ratio of the current price to the base price multiplied by 100 i.e. (P1/Po) X100. In the next stage, commodity/item level index is arrived at as the simple arithmetic average of the price relatives of all the varieties (each quote) included under that commodity. Next, the indices for the sub groups/groups/ major groups are compiled and the aggregationmethod is based on Laspeyres formula.

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9) Provisional Vs Final: The weekly indices are compiled after a short gap of two weeks only as compared to other indices, which are compiled on monthly basis. The WPI are, therefore released provisionally and final revised indices, incorporating all possible quotations, are released after a gap of two months.

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10) Data collection mechanism : At present data collection for WPI is solely based on voluntary basis. Price data pertaining to Primary articles and Fuel & petroleum products are mainly collected through administrative Ministries/ Department’s, PSU’s and state government departments. For ‘Manufactured products’, apart from some government sources, data collection is done through Chambers of Commerce, Trade Associations, Business Houses and leading Manufacturing Units.

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RBI hikes policy rates by 25 bps, surprises on timing

The Reserve Bank of India (RBI) in the post market hours on Friday evening hiked its benchmark policy rates repo and reverse repo by 25 basis points (bps) in order to check the surging pace of price hike and cushion inflationary expectations which have been threatening to move out of central bank’s control.

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The hike while was well anticipated, the timing of the announcement was an absolute surprise. Analysts have been anticipating a mid-cycle hike right from the release of central bank’s annual monetary policy statement in April. However, the euro zone sovereign debt crisis and the recent liquidity crunch have been weighing on the side of keeping status quo on policy stance.

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The expectations of a mid-cycle action increased after the inflation data released in middle of May showed wholesale prices index (WPI) reaching double digit levels. The RBI however remained silent. Again when the empowered group of ministers (EGoM) hiked fuel prices on June 25, analysts expected RBI to act immediately to counter the inflationary impact of partial deregulation of auto fuels and hike cocking fuels. No action however came at that time.

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Now that the scheduled review is just around four weeks away (July 27), most economists were expecting that the RBI will wait for the policy review. However, surprising the markets in a classical way, the central bank increased the rates when no one was anticipating.

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Notwithstanding the surprise though, the policy action is a welcome move as inflationary tendencies have been increasing sharply over last few months. The central bank, according to many observers, is already behind the curve, and may have to pick up the pace of policy tightening going forward if the pace of prices hike in the non-food manufacturing space continues.

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The timing and extent of hike also suggests that the central bank will further raise policy rates in the scheduled review. In fact, by hiking by 25 bps now, the RBI has given itself more flexibility for the forthcoming review where it can now choose among a number of permutations and combinations of policy and reserve rate mix. It may choose to hike everything (repo, reverse repo and CRR) by 25 bps or may leave CRR alone and hike policy rates by 50 bps. A few other combinations are also plausible.

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Justifying the initial delay in policy action and the actual timing of the move, the RBI stated, “This mid-cycle policy action has been warranted by the evolving macroeconomic situation. Even as data for real GDP growth and WPI inflation became available by mid-June 2010, it was considered inadvisable to raise the policy rates as the financial system was dealing with liquidity pressures…Through the month of June, liquidity under LAF operations remained in deficit mode. Consequently, the call rate moved up significantly, resulting in an effective tightening at the short end of the yield curve. The liquidity situation has since begun to ease”.

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Since the RBI expects that liquidity may continue to remain tight for some time, it has also extended the additional liquidity support to scheduled commercial banks under the LAF to the extent of up to 0.5% of their net demand and time liabilities (NDTL) up to July 16, 2010. The measure was first put in place on May 26 after liquidity scenario tightened following the advance tax outgo and huge payments for the 3G spectrum by telecom operators and was earlier set to expire on July 2, 2010.

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While the two moves may seem contradictory, the RBI didn’t leave the matter to be explained by analysts and added in its statement, “It should be noted in this context that the liquidity easing measures have become necessary to manage what is essentially a temporary and unanticipated development. In no way should they be viewed as inconsistent with the monetary policy stance of calibrated exit, which remains focused on containing inflation and anchoring inflationary expectations without hurting growth”.

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WEEKLY Update 22nd – 26th March

Global market sentiments together with continued buying by foreign institutional investors led domestic markets to pose one of the best six consecutive weekly gains after almost a year. The fact behind such a move is that market participants are gaining a lot of confidence & believe that the domestic economic activity is getting stronger & stronger over the period.

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Encouraging advance tax payments for the Q4 March 2010 also assured the market participants for better than expected corporates profit. As expected Standard & Poor’s (S&P), the credit rating agency revised India’s outlook to ‘stable’ from ‘negative’ with the government’s pledge to reduce fiscal deficit over the next three years in the budget.

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The move complemented overall sentiments of the market post the S&P upgrade as some foreign investors who were restricted from investing in countries below a certain degree of credit worthiness would now come to the market. On the expected lines of monetary tightening, RBI surprised the markets on the last day of trading by increasing both policy rates by 25 bps, a month before its quarterly meeting scheduled in April.

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In the light of sustained pickup in economic activity & headline inflation passing through the baseline projection of 8.5 for end-March 2010 has induced RBI to come up with such stronger action. Moreover, non-food manufacturing products that constitutes 52.2 per cent weight in WPI has seen sustained rise from negative (-0.4 per cent) in November 2009 to 4.3 per cent in February 2010.

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Increasing capacity utilisation and rising commodity and energy prices are exerting pressure on overall inflation. The small hike of 25 bps in policy rates is considered only as a signal & if needed, RBI may come out with more of such steps in case of sustained inflationary conditions in the economy. In the coming week, interest rate sensitive like, Auto & Real estate stocks may see some pressure on the expectation of dearer loans in the future.

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Overall trend of world markets is still up but the rise in dollar index every now and then gives some fear to the rally in commodities. Dollar index, which is at current levels of 80.75, if closes above its key resistance level of 81, can give jitters to various commodities and stock markets so one should take care. Nifty has support between 5150-5050 levels and Sensex between  17200-16800 levels.

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Range trading from last few weeks has kept investors in a fix. Ambiguity over the next move is refraining investors to take large positions in commodities. Currency has become crucial here. Greece concern is capping the upside of euro and dollar index is not breaking its range.

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Furthermore, there is no as such big fundamental news which can give a clear cut direction to commodities. Some supply disruption in copper and nickel can support the prices at higher side. Hence, cautious trading is advised for investors.

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Even in agro commodities, arrival pressure in many commodities is limiting the upside despite the steady demand. Once arrivals get clear, bottom formation is expected in many agro commodities.

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Govt. Pegged Economic Growth At 7.75 Percent

Govt. Pegged Economic Growth At 7.75 Percent

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The government today pegged economic growth for the current fiscal at 7.75 per cent, higher than all previous estimates, but said high food inflation remained a cause for concern.

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Moreover, Pranab Mukherjee also said that the government could unload surplus wheat and rice stocks for open market sale.

“There are enough wheat and rice stocks. Therefore, it is proposed to make open market sale for unloading of surplus stock,” he said.

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The food inflation after surging to 19.83 per cent in the third week of December softened to 18.22% as of the week ended December 26.

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The wholesale price based inflation was 19.835 in the previous week while potato remained costly increasing as much as 110% over the last year.

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This was followed by pulses whose prices jumped by 42.21% while vegetables turned expensive by 30.97% and onion prices rose by 40.07% on yearly basis.

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“A major area of concern is high food inflation; therefore collaborative efforts of the central and state governments are required to tackle this problem” Mukherjee said at the meeting.

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Economic growth stood at 7 per cent during the first half of the current fiscal, Mukherjee said.

He pegged GDP growth for the whole fiscal at around 7.75 per cent – a number that exceeds the initial estimates of the government as well as the RBI.

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Prime Minister Manmohan Singh last month stated that returning to a speedy expansion pace after a slow 2008 due to the global economic crisis; economy is expected to rise by 7% or a little more in the current fiscal.

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INFLATION – “THE SILENT CREEPER” Final Part

Hello Friends here we come up with an extension of our previous blog, INFLATION

–  “THE SILENT CREEPER” Part 2.

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INFLATION – “THE SILENT CREEPER” Part 3

In previous Blog we had touched upon the possible Measures to check inflation.

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Now in this part we would look into other concerns in Indian economy regarding the parameters to check inflation.

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Concerns in Indian Economy Regarding Inflation :

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Apart from reasons and measures to check inflation, other concern in Indian economy is the parameters to check inflation.

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It is well known that India is the only country which considered WPI (Wholesale Price Index) while rest of the countries measured CPI (Consumer Price Index).

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WPI consists of 435 goods over 1993-94, as base year in which the weightage of food items is only 16%, which has large weightage of consumer spending in India.

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Though WPI in India is still in single digit, if we consider CPI it is already in double digit due to dearer farm articles and their higher weightage in measures.

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In CPI, food articles have 50% weightage.

Hence there is a wide gap between the weightage of food articles of WPI and CPI, which are unable to give the clear pictures.

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Furthermore, 2/3rd of the price quotations used to calculate the WPI are sourced from only four metros.

Hence to get the real picture, area should be widened.

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comparison between food inflation and WPI from January, 2008 to October, 2009.

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In the above chart, it is a comparison between food inflation and WPI from January, 2008 to October, 2009.

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Line chart is representing WPI monthly inflation whereas bar chart is indicating food article inflation.

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It appears that food article inflation is on continuous rise while WPI monthly inflation saw both side movements.

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It has started its northward journey in the month of March-April and it is still continued.

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Arrival of kharif crop is less likely to cool it as we are expecting 18% decline in kharif crop.

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Hence downside will be limited, rather it may move in a range with upside bias.

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The words of future RBI (Reserve Bank of India) has revised its outlook for inflation and expecting that it should be between the range of 5% to 6-6.5% for the year ending March 2010.

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There is a fear in the economy that the real impact of almost 18% drop in kharif rice production is to reflect in inflation.

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It would occur when kharif produce; rice, pulses, oilseeds and cereals would start coming in the market.

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With witnessing favourable weather conditions, economy is expecting strong rabi produce, which may cool off inflation of food articles to some extent.

However, we cannot rule out the possibility adverse weather.

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Ultimately what matters is final produce and yield.

Government has to take care of everything like, demand –supply equilibrium, money supply, distribution etc.

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Otherwise it will become nightmare for “aam admi” and hamper the economic growth.

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🙂

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Food Inflation at 13.7% !!

Hello Friends here we come up with the Latest Agri Commodities updates from various parts of the country.

Food inflation at 13.7%

Food inflation at 13.7%

Food inflation at 13.7%:

The food price inflation went up marginally to 13.7% for the week ended October 31 following an increase in vegetable prices, but the arrival of winter crop is expected to bring down the prices soon.

The built up inflation in the current year, or the increase in prices from the beginning of the current fiscal to end of October, has been strong at 14.4% against 7.67% in the corresponding period last year, data released on Wednesday showed.

This rise has been particularly steep in case of pulses (21.2%), vegetables (54.5%) and potatoes at (127.6%), clearly indicating that poorer segment of the population, who would spend a high proportion of their income on food, would have been hit hard by the increase in the prices.

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In Other major Commodities Updates we can see that wheat production in country is set to increase by 2 million Tonne in 2009-10.

Wheat Production to Increase by 2 Million Tonne in 2009-10:

Wheat acreage and production is expected to increase in 2009-10 rabi season.

A large area, which was not sown under rice due to poor monsoon this year, is expected to come under wheat according to scientists.

Area in central and southern belt will increase as unsown area will come under wheat.

Also, in the Indo-Gangetic plain of the Punjab plain, the Haryana plains, and the middle and lower ganga area will increase.

Rains in the month of September have ensured moisture availability for wheat.

However, the late harvesting of paddy (due to increase in temperature in the last week of October) has delayed sowing of wheat which is a big concern for the agriculture scientist and the farmers.

🙂

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