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India's inflation based on the Wholesale Price Index (WPI) rose to a four-month high of 14.55 percent in March from 13.11 percent in February, according to data released by the commerce ministry on April 18.

The WPI inflation was 7.89 percent in March 2021. Another 10 percent-plus print means WPI inflation has now been in double-digit territory for 12 consecutive months.

The rise in wholesale inflation in March comes after data released on April 12 showed the more closely-tracked headline retail inflation rate based on the Consumer Price Index (CPI) jumped to a 17-month high of 6.95 percent last month.

While the Reserve Bank of India's (RBI) policy target is spelt out in terms of CPI inflation, high WPI inflation is seen as a precursor to higher consumer prices as producers pass on rising costs to customers.

The rise in WPI inflation in March was driven by an increase in prices across the board, although non-food items led the charge.

"The high rate of inflation in March, 2022 is primarily due to rise in prices of crude petroleum & natural gas, mineral oils, basic metals, etc owing to disruption in global supply chain caused by Russia-Ukraine conflict," the commerce ministry said.

The index for the fuel and power group of the WPI jumped 5.68 percent month-on-month in March, while that for manufactured products rose 2.31 percent over the same period.

Manufactured products account for 64.23 percent of the WPI basket.

The food index, in comparison, rose by only 0.54 percent in March from February. However, the month-on-month increase in March is higher than the 0.06 percent posted in February.

Overall, the all-commodities index of the WPI was up 2.69 percent month-on-month as against 0.76 in February, indicating rising momentum in price pressures.

The impact of the war between Russia and Ukraine seems to be spilling into non-fuel prices, with the index for wheat rising 3.19 percent in March from February. As a result, wheat inflation increased to 14.04 percent from 11.03 percent in February.

Russia and Ukraine are major global exporters of wheat.

Prices of petrol and diesel remained steady for the tenth day in a row on April 16. Since the end of a four-and-half-month hiatus in rate revision on March 22, rates of petrol and diesel have increased by Rs 10 per litre each through 14 rounds of revision. The prices were last hiked on April 6 by 80 paise a litre each.

According to a price notification from fuel retailers, petrol in Delhi costs Rs 105.41 per litre and diesel Rs 96.67 per litre.

In Mumbai, petrol and diesel prices per litre are Rs 120.51 and Rs 104.77 respectively. In Chennai, petrol costs Rs 110.85 and diesel Rs 100.94. In Kolkata, petrol is Rs 115.12 and diesel Rs 99.83.

Amid an outcry over high fuel prices, Petroleum and Natural Gas Minister Hardeep Singh Puri on April 14 said the government has been appealing to states which have not reduced value added tax on petrol and diesel to cut the VAT.

A report on April 12 stated that the current domestic retail fuel prices are benchmarked to international oil prices at $95 per barrel. With Brent crude oil prices close to $100 per barrel in the week, domestic fuel prices could freeze again for some time. 

India is 80 percent dependent on imports for its oil needs. Here is how petrol and diesel prices are calculated in India. Also, know how much of it is tax.

137-day freeze on fuel prices ended on March 22

From November 3, 2021 until March 22, 2022, there had been a freeze on fuel prices after the central government's excise duty cut of Rs 5 a litre on petrol and Rs 10 a litre on diesel, and many states also lowering state tax.

During this period, there was also a spike in international crude oil prices. This triggered speculation that the freeze was due to assembly elections in Uttar Pradesh, Punjab, Uttarakhand, Goa and Manipur.

It was widely anticipated that fuel prices at the pump would increase after the poll results were out on March 10.

Consumer inflation came in at a surprisingly high 6.95 percent in March versus a CNBC-TV18 economists’ poll that saw inflation at 6.28 percent.

Most economists including those from Citi, HSBC and Kotak have revised their inflation forecasts for the year upward and now see as many as six repo rate hikes in consecutive Monetary Policy Committee meetings starting in June. Citi and HSBC see the repo rate at 5.5 percent by April 2023. The rate is currently 4 percent.

The 10-year bond yield, which has surged since the Reserve Bank of India’s policy day (April 8), is expected to shoot up to 7.25 percent from the overnight close of 7.17 percent.

INFLATION DETAILS

The Consumer Price Index (CPI) for March rose to 6.95 percent because of mostly sharp price increases in a wide range of goods and services – edible oils (expected after the Russia-Ukraine war), meat, eggs, fish, vegetables, pulses, clothing, footwear, household goods and services, transportation, health goods and services.

Food inflation was up 7.68 percent from a year ago, while core inflation (excluding food and fuel) jumped to 6.4 percent from 6.1 percent a month ago.

The almost 1 percent month-on-month jump in March inflation has pushed up the CPI index number so much that inflation readings will have to be revised higher for several succeeding months. Economists now expect CPI readings of over 6 percent all the way till September. Readings in January, February and March are already above 6 percent.

POLICY IMPACT

CPI of 6 percent-plus for three consecutive quarters will bring the inflation-targeting monetary policy framework into play. This framework mandates the MPC to keep inflation at 4 percent, plus or minus 2 percent, or between 2 percent and 6 percent.

Also Read | New lessons in managing inflation in the West: KV Kamath

If CPI remains above 6 percent for three quarters in a row, the RBI must write to Parliament explaining why it failed in its mandate and also take steps to bring CPI back under 6 percent.

The only instrument the MPC and the RBI have to drag down inflation is hiking the repo rate. Hence the widespread expectation that India’s rate-hiking cycle will start in June.

MARKET IMPACT

Bond market yields have been surging since the Russia-Ukraine war and more sharply since the April 8 policy, when the RBI changed its stance to “withdrawal of accommodation.”

With the massive government borrowing programme also kicking in this week, 10-year government bond yields may remain above 7.25 percent, which will in turn pull up the cost of borrowing for companies.

Equities may take the expected rate hikes in their stride, as is being witnessed in the US. In the early stages of an inflation and interest rate hiking cycle, equities normally do well as firms that have pricing power are able to pass on raw material inflation to consumers via higher product prices. Such companies see their revenue and earnings rise in nominal terms.

It’s only in the latter part of the rate-hike cycle, probably after a dozen or more hikes, that the economy slows down and lower demand hurts earnings per share.

India is planning to boost shipments to Russia by an additional $2 billion as the two nations work out a payment system in local currencies to continue bilateral trade amid sweeping international sanctions on Russia for invading Ukraine, people with the knowledge of the matter said.

To do this, Prime Minister Narendra Modi’s administration is in talks with Moscow to liberalize market access for several Indian-made products, the people said, asking not to be identified as the talks are private. This comes as the two governments work toward a proposal to settle trade in rupees and rubles and look for ways to balance the trade given that India is a net importer of Russian goods.

India is looking to export products supplied by countries who have halted shipments after U.S. and its allies imposed sanctions, they said.

On the list are pharmaceutical products, plastics, organic and inorganic chemicals, home furnishings, rice, beverages such as tea and coffee, milk products, and bovine products.

India has come under severe criticism for lifting imports of oil to take advantage of a dip in prices after U.S., Europe, Australia and Japan piled economic sanctions onto Russia in response to its war against Ukraine. President Joe Biden met with Modi on Monday and conveyed that the U.S. stands ready to help India diversify its energy imports, which would make it less reliant on Russia.

A Commerce Ministry spokesperson did not immediately respond to an email seeking comment.

An analysis by the trade department shows that India can easily scale up exports to Russia in the top 20 items it needs to imports. Marine products, textiles and apparel, footwear, machinery, and electronics are some of the other items India is seeking to send to Russia.

Currently, India’s exports to Russia stand at a miniscule $3 billion compared to the over $68 billion of shipments to the U.S. It could be higher but for steep logistics cost, sanitary rules, the language barrier and lower allocations in government procurement done by Russian state-run firms. Total bilateral trade between the two countries stood at $11.8 billion in the first 11 months starting April 2021, higher than $8.1 billion recorded for the previous full-year.

India has historically attempted a neutral stance on tensions between major powers, even as it has joined groups such as the Quad security alliance with Australia, Japan and the U.S.

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Domestic petrol and diesel rates are directly benchmarked against international crude oil prices, and with oil prices soaring in the last two months, state-owned fuel retailers needed a price hike just to break even.

Now, with petrol and diesel prices increasing by Rs 10 per litre over 14 revisions since March 22, sources told CNBC-TV18 that "sustained fuel price hikes may not be needed if crude prices stabilise at current levels".

According to the sources cited by the channel, the current domestic retail fuel prices are benchmarked to international crude oil at $95 per barrel. With the last week's Brent crude oil prices at not more than $100 per barrel, the sources indicated that domestic fuel prices could again be put on a freeze for some time.

At the same time, they also stated that oil marketing companies (OMCs) may still recover about a month's worth of losses.

"Approximately one month more of losses may still be recoverable by OMCs," said the sources.

According to the report, OMCs made gains till January end and the gains balanced out in February. It is further said that though discussions have been held about a central excise duty relief, a decision has not been taken yet.

It is said that Rs 5 per litre excise cut on petrol and diesel will cost Rs 70,000 crore revenue loss at this stage for the government.

The last time when the central government cut excise duty of Rs 5 a litre on petrol and Rs 10 a litre on diesel and many states also reduced state tax, there had been a freeze on fuel prices from November 3, 2021, to March 22, despite the spike in international crude oil prices.

The domestic rates of petrol and diesel have remained steady for the sixth day in a row on April 12.

On a daily basis, OMCs adjust the price of petrol and diesel depending on the average price of benchmark fuel in the worldwide market over the previous 15 days and foreign exchange rates. Every day at 6 am, any changes in petrol and diesel prices take effect.

Here is how petrol and diesel prices are calculated in India. Also, know how much of it is tax.

Also Read: RBI Governor Shaktikanta Das forecasts crude oil price will be at $100 per barrel in FY23

On March 24, Moody's Investors Service estimated that India's fuel retailers IOCL, BPCL and HPCL have together lost around $2.25 billion or Rs 19,000 crore in revenue in the November 2021 to March 2022 period after they kept petrol and diesel prices unchanged despite a sharp rise in crude oil prices.

JP Morgan in its report said for OMCs to revert to normalised marketing margins, retail prices need to increase by Rs 9 a litre or 10 percent.

At last week’s monetary review, the monetary policy committee (MPC) jolted the rate environment by resetting the policy priorities to inflation before growth, an oblique increase in the reverse repo rate, and an open field for future policy actions as befits a highly uncertain price environment.

None of this was anticipated. The punch was forceful and the bond market reacted to that as well as what had been expected, viz., forecast revisions that now see inflation 120-basis points higher at 5.7 percent in FY23, and real GDP slower by 60-basis points at 7.2 percent, and a modified stance “…to remain accommodative while focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth”.

The message was reinforced at the post-policy conference by the RBI Governor specifically underlining the raised inflationary risks and rearrangement of policy priorities. The bond market responded breathtakingly with the 10-year (6.54 percent) benchmark yield jumping 19-basis points to 7.12 percent, increasing more since this week.

Markets and analysts hadn’t expected any action despite the RBI’s communication in preceding weeks about forecast revisions in the April review owing to developments associated with the Russia-Ukraine war; or the government’s steady and daily pass-on to retail-level the prices of all fuels. They were focused upon what the MPC would signal about the future policy course and its normalisation. In part this was because of the past assurance that changes would be ‘well-telegraphed’ in advance. Partly, this was because beliefs about the tolerance of a higher-for-longer inflation by a pro-growth RBI in an environment of fiscal dominance had crept in.

All that is now past. Supply or demand, good or bad inflation, it figures prominently in the policy trade-off. This has been well-telegraphed although many may argue the gear shift, sudden as it is and the heavy-duty impact it has had upon markets and the environment, was anything but. The strangely-worded stance – remaining accommodative while focusing on withdrawal of accommodation – indicates conditions will be less ultra-easy, as elaborated at the post-policy conference.

RBI Deputy Governor Michael Patra said that the movement towards a positive real policy rate has begun, although it’s presently unclear what this might be, and adding that for India’s stage of development, this needs to be positive. As to the distance to positive real rate territory, this is uncertain; at best, speculation with plenty depending upon the evolution of commodity prices.

The central bank made it clear — in forward guidance as it were — that it is ‘ready to take whatever action is required’ and will act ‘as per the emerging situation’, and ‘will be nimble’. Entirely in line with the enlarged uncertainties embedded in the fan charts of RBI’s latest inflation projections, this indicates monetary actions are bespoke than smooth or pre-guided adjustments. It also fits into the multiple challenges posed by an exceptionally uncertain environment with diverse risks: geopolitical, the US monetary tightening, and QT in place of QE (quantitative tightening instead of easing), slowing world demand and possible recession, domestic inflation and slowing growth, the pressure of large government borrowings, among some. It allows balancing of possibly competing policy demands or claims at any point of time in the forthcoming months ahead.

This is also buttressed by the RBI’s fortification of its toolkit — it has substituted the reverse repo rate (this remains unadjusted but, on the instruments menu) with an uncollateralised standing deposit facility (SDF) as the LAF floor; at 3.75 percent, this restores the corridor to 50-basis points, the pre-pandemic level, and is an operative increase of 40-basis points to remove overnight liquidity.

Since monetary actions are conditional upon the inflation readings, this obviously puts the spotlight on the incoming data. In particular, the impact of the fuel prices’ pass-throughs, direct and indirect, will be cumulatively visible in the present quarter’s CPI inflation, where the projected central tendency is currently 6.3 percent.

If exceeded, could a policy rate hike follow on its heels? Or would a changeover to ‘neutral’ stance come first? The RBI has communicated in advance that if inflation surprises on the upside, it will act. No surprise there.

Renu Kohli is a New Delhi-based macroeconomist. Views are personal, and do not represent the stand of this publication.

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The country’s fuel demand soared 4.2 per cent to a three-year high in March as petrol and diesel consumption rose above pre-pandemic levels, according to official data released on Monday.

Total petroleum product consumption in March stood at 19.41 million tonnes, the highest since March 2019, data from the Petroleum Planning and Analysis Cell of the oil ministry showed.

As the economy continued to rebound from the deep impact of the third wave of the COVID-19 pandemic, demand for transport fuel rose in March.

Diesel, the most used fuel in the country accounting for almost 40 per cent of all petroleum product consumption, saw the demand rising by 6.7 per cent to 7.7 million tonnes.

Petrol sales, which crossed the pre-Covid levels a few months ago, were up 6.1 per cent at 2.91 million tonnes.

India is no doubt committed to net-zero energy policy, but at the same time electricity needs of a growing economy in a warming climate makes it fall back time and again on the fuel over which it has a greater control 

Coal India Limited ended the last financial year with a bumper record-breaking production. At about 623 million tonnes, the production in FY22 was 2.6 percent higher than the earlier high of 607 million tonnes in FY19.

Yet, as summer kicks-in, we stare at the possibility of not having enough coal to power our fans and air-conditioners. Businesses are possibly the worst-hit and are already returning to the old ways of using diesel generators for backup supply.

This time around the shortage of coal looks more pronounced and supposedly to be prolonged than what was observed in October. That is because increasing temperatures due to summer season is resulting in stronger demand for electricity. At the same time war in Europe has put pressure on already high prices of imported coal.

Almost all parts of India are seeing a surge in peak power demand, and experts project an all-India peak in the range of 215-220 GW over next few months. The coal ministry is working towards scaling-up targeted domestic production required to meet the coming monsoon season demand. All this while the share of imported coal has gradually gone down, first due to change in import country policies, and, more recently, on account of fresh demand from European Union as a result of the Russia-Ukraine war.

Keeping aside the macro-economic and geopolitical factors, one thing that is clear is that India is still far away from declaring its independence from coal. The country is no doubt committed to net-zero energy policy, but at the same time electricity needs of a growing economy in a warming climate makes it fall back time and again on the fuel over which it has a greater control.

That leads to the question as to when will coal peak in India?

The answer to this is not only of special interest to the worldwide community of Climate Change scientists and energy transition investors, but more crucial to Coal India Limited (CIL) and its shareholders, primarily the Government of India. Even more so to the coal-rich states and communities who have to chart their future in an uncertain risk of energy transition impacting their economy and livelihood.

CIL is still not close to its own set target of 1,000 million tonnes of yearly production, which it had aimed to achieve by 2020. In the meanwhile, the Economic Survey of India 2021-22 has projected coal demand in the range of 1,300 to 1,500 million tonnes by 2030. Given the clues of strong persistent demand and the flak CIL has received for falling short of demand, the miner has identified employee productivity and evacuation infrastructure as the focus areas in the short-term.

Although employee productivity has nearly doubled from 1,263 tonnes per man per year in 2013 to 2,032 tonnes per man per year in 2021, the output is quite diverse across its seven subsidiaries, and planning is underway to close down unviable mines in a phased manner. In order to boost production, the company has cleared 16 coal mining projects with a cumulative additional output expected at 100 million tonnes per year. Further the ministry of coal, and the ministry of railways are jointly working on the evacuation infrastructure required to connect mines with coastal power plants which are supposedly shifting from imported coal to domestic coal.

All these efforts require significant capital investments, funding of which is another cause of concern. Given the already increased energy prices and inflationary pressure on the economy, any headroom for increase in domestic coal price is limited. To add to the financial pressure, India’s power distribution companies are in a bad shape and their inability to pay for power purchase impacts everyone in the value-chain, including CIL. As of end FY22, the gross debtors of CIL and its subsidiaries totals Rs 153 billion.

To top it all new financing for expansion of coal mines and allied infrastructure is getting tough with banks and financial institutions signalling to move away from fossil fuel investments. That will impact financial closure for bidders who wish to participate in commercial coal auctions, and as mine developer and operator (MDO) for domestic mines.

Nevertheless, none of these would mean that India can slow down on its coal consumption just yet. The insatiable demand for energy is too large, and there are still returns available in the mining and extraction of coal as well as from operations of thermal power plants.

For the government it means managing the situation in the short to medium term while not taking its eyes off the already committed long term energy transition goals. That would require focused attention on increasing mines productivity, efficiency in the coal supply chain on one hand, and a continued support in the form of incentives for solar module manufacturing and alternatives such as hydrogen on the other hand.

In short, trying all options at disposal to keep fuelling the economy’s engine, while not losing focus on energy security and independence.

For the million-dollar question of when will coal peak in India — let’s just say not so soon as many may like or wish to believe.

Rasika Athawale is Founder, India Energy Insights. Views are personal, and do not represent the stand of this publicatio

Tata Group is preparing itself to take on established giants such as Amazon and Flipkart in the Ecommerce space.

Tata Sons has invested Rs 5,882 crore in its ecommerce company Tata Digital. This is the most the Tatas have invested in ecommerce in any single fiscal year.

The additional funding takes overall investment into Tata Digital in 2021-22 to Rs 11,872 crore, reported The Economic Times, citing regulatory filings of Tata Group.

According to the publication, in filings to the Registrar of Companies (RoC), it is mentioned that the board of Tata Digital on March 30 approved the allotment of 5.88 billion fully paid-up equity shares of Rs 10 each on a rights basis, aggregating to Rs 5,882 crore, to Tata Sons, the holding entity of Tata Digital.

Tata Digital, which is also the holding company for the group's electronics retail chain Croma, got Rs 5,990 crore in numerous tranches from Tata Sons in the nine months leading up to December 2021-22, according to the report.

As Tata Group attempts to take on existing players amid the rapid growth in the consumer digital economy space, it launched on April 7 its much-anticipated super app Tata Neu that allow users to access a range of services from the company-owned brands including Air Asia, BigBasket, Croma, IHCL, Qmin, Starbucks, Tata 1Mg, Tata CLiQ, Tata Play, and Westside.

Tata Group is preparing itself to take on established giants such as Amazon and Flipkart in the Ecommerce space.

Tata Sons has invested Rs 5,882 crore in its ecommerce company Tata Digital. This is the most the Tatas have invested in ecommerce in any single fiscal year.

The additional funding takes overall investment into Tata Digital in 2021-22 to Rs 11,872 crore, reported The Economic Times, citing regulatory filings of Tata Group.

According to the publication, in filings to the Registrar of Companies (RoC), it is mentioned that the board of Tata Digital on March 30 approved the allotment of 5.88 billion fully paid-up equity shares of Rs 10 each on a rights basis, aggregating to Rs 5,882 crore, to Tata Sons, the holding entity of Tata Digital.

Tata Digital, which is also the holding company for the group's electronics retail chain Croma, got Rs 5,990 crore in numerous tranches from Tata Sons in the nine months leading up to December 2021-22, according to the report.

As Tata Group attempts to take on existing players amid the rapid growth in the consumer digital economy space, it launched on April 7 its much-anticipated super app Tata Neu that allow users to access a range of services from the company-owned brands including Air Asia, BigBasket, Croma, IHCL, Qmin, Starbucks, Tata 1Mg, Tata CLiQ, Tata Play, and Westside.