IIP contracts, retail inflation up

Retail inflation soared to a four-month high in March on the back of high food prices, while industrial output contracted for the second consecutive month in February, adding to worries over health of the economy, amid the backdrop of rising Covid cases.

Retail inflation as measured by the consumer price index rose an annual 5.5% in March, higher than 5% recorded in the previous month. The food price index rose 4.9% during the month, higher than 3.9% in February. The gap between urban and rural inflation widened. Rural inflation was at 4.6%, while urban inflation was at 6.5%. The gap between the two has been widening since December last year.

Food and beverages inflation rose to a four-month high of 5.2% in March, while core inflation (excluding food and fuel) shot up to a 32-month high of 5.8% during the month.

Economists attributed the increase in food prices to constrained supply, increased demand and higher transportation costs and cautioned that localised lockdowns to curb spread of the infection could further impact prices.

“With renewed pandemic restrictions across the country, elevated global prices across commodities and higher transportation and logistics costs, price pressures are likely to prevail in the coming months for most segments. We expect CPI inflation to rule above 5% for the next two-to-three months,” Madan Sabnavis and Kavita Chacko, economists at Care Ratings, said in a note.

Separate data released by NSO showed industrial production shrank 3.6% in February, sharper than the revised 0.9% decline posted in previous month, and dragged down by a decline in manufacturing, mining, capital goods, construction goods and consumer nondurables. The manufacturing sector, which accounts for nearly 77% of the index, contracted 3.7% in February compared with an expansion of 3.8% in the year-ago period. The only bright spot was consumer durables, which rose 6.3% compared to a contraction of 6.2% in February 2020.

Rupee weakens to 8-month low

The rupee suffered from some sharp weakness, ending below the 75-to-the-dollar mark for the first time in eight months. The drop came after foreign funds were forced to sell in the domestic market as rising Covid cases triggered fears about further delay in India’s economic recovery. At close, the rupee was at 75.06 to a dollar — weaker by 32 paise from its Friday close of 74.74.

According to Reliance Securities senior research analyst Sriram Iyer, in addition to the market’s fears about a further setback to the economic recovery process, “the likelihood of higher retail inflation also weighed on sentiments”.

On Monday evening, the government said that the retail inflation rate for March was 5.5%, up from 5% a month ago, while the index of industrial production showed a slide in February with IIP down 3.6%. The interbank forex markets are closed on Tuesday and Wednesday. So, market players will get a much-needed respite for two days.

New Delhi Objects to US Navy’s Military Moves in Indian Seas

A day after an unusual announcement by the US that it conducted patrols in the Indian Exclusive Economic Zone this week without consent to assert its’navigational right and freedoms’, India registered diplomatic concerns with Washington DC.

In an official statement later, the foreign ministry said that the USS John Paul Jones “was continuously monitored transiting from the Persian Gulf towards the Malacca Straits” during which it passed through the Indian EEZ off the Lakshadweep islands. “The Government of India’s stated position on the United Nations Convention on the Law of the Sea is that the convention does not authorise other states to carry out military exercises or manoeuvres, in particular those involving weapons or explosives, without the consent of the coastal state in the Exclusive Economic Zone and on the continental shelf, ” the official statement said.

Sources said that the announcement of the “freedom of navigation” patrols by the US has come as a surprise, given that such operations were carried out in the past but never announced in such a provocative manner. Sources said that while the US warship was tracked during its transit close to India, it was not challenged, given the friendly nature of maritime relations.

Official sources said the nature of the statement, rather than the patrol itself, was a matter of concern as India has not objected to innocent passage of traffic through its EEZ. There have been several instances of US Navy ships passing through these waters but the statement issued by the US Navy is being seen as provocative, they said.

“We conduct routine and regular Freedom of Navigation Operations, as we have done in the past and will continue to in the future,” the US Navy had said, indicating that it will continue such manoeuvres. The US statement has raised concerns in diplomatic and naval fraternity as well, with former chief of naval staff admiral Arun Prakash pointing out that carrying out such missions in violation of Indian laws is unfortunate, and publicising it even more so.

“Freedom of navigation operations by USN Navy ships (ineffective as they may be) in South China Sea are meant to convey a message to China that the putative EEZ around the artificial SCS islands is an “excessive maritime claim”. But what is the 7th Fleet message for India?” the retired officer tweeted. Former foreign secretary Kanwal Sibal also raised concerns over the move, terming it a needless provocation. “US advocates a rules-based order in the Indo-Pacific in the maritime domain but refuses to adhere to UNCLOS which lays down the international maritime law. It wants to eat the cake and have it too. Freedom of Navigation Operations in SCS is one thing because China has violated UNCLOS and repudiated the arbitral award rejecting its claims. FONS in India’s EEZ is needless provocation,” he said.

Former deputy NSA SD Pradhan said that the move has the potential of disturbing the quadrilateral arrangement being pursued for peace and security in the region. “This is going to impact not only bilateral relations with US but could adversely affect the aim of establishing free, open and inclusive Indo-Pacific. The Quad meeting had agreed to follow the international norms based on respect of sovereignty of all nations in the region and this act goes against the spirit of the fledgling group,” he said.

March 2021: Covid Resurgence Slows Services Activity

The pace of expansion of services activity in India slowed in March, curbed by the second wave of the Covid-19 pandemic and low footfalls, leading to job shedding for the fourth straight month.

The India Services Business Activity Index fell to 54.6 in March from 12-month high of 55.3 in February but stayed above the 50-mark on the index that separates expansion from contraction.

Companies that noted higher output linked the upturn to the series of state elections, rising sales and improved demand, while some firms mentioned low footfall, consumer uncertainty and the Covid-19 crisis led to a reduction in activity at their units and restricted the upturn. The consecutive six-month upturn was associated with the elections, higher demand and successful marketing.

“The escalation of the pandemic and the reinstatement of restrictions could cause a notable slowdown in growth during April,” said Pollyanna De Lima, economics associate director at IHS Markit, adding that service providers hope for an improvement in vaccine availability.

External demand for Indian services continued to worsen, with new orders from abroad decreasing for the thirteenth straight month, according to the survey.

Services companies reported higher expenses in March. The rate of input cost inflation was sharp and outpaced its long-run average, despite slowing from February’s eight-year high and participants reported a sharp increase in input costs, the second-fastest since February 2013.

Looking ahead, companies expect business activity to increase over the course of the next 12 months based on rising client enquiries and hopes for greater vaccine availability. The overall level of confidence was unchanged from February.

“In our view, vaccination progress remains critical for India to manage the growth impact of the latest surge in Covid-19 cases,” said Rahul Bajoria, chief India economist, Barclays, adding that the impact of the localised lockdowns might be felt in the April print.

As per the survey, sub-sector data pointed to growth of output and sales in Consumer Services, Finance & Insurance and Transport & Storage. Information & Communication and Real Estate & Business Services dropped in the rankings, posting declines in new work and business activity.

A sister survey on Monday showed manufacturing activity in India growing at its slowest pace in seven months, restricted by the second wave of the Covid-19 pandemic.

Put together, growth of Indian private sector output eased in March and the Composite PMI Output Index was at 56, down from 57.3 in February, signalling expansion for the seventh month running. Aggregate employment decreased further, marking a 13-month sequence of job shedding.

Though softer increases were recorded in the manufacturing and service sectors, new business received by private sector companies rose for the seventh consecutive month.

Filmmakers dismayed as government disbands tribunal

The film fraternity has expressed disappointment over the government’s decision to disband the Film Certification Appellate Tribunal, an appellate authority that filmmakers approached to challenge decisions taken by the Central Board of Film Certification, more popularly known as the censor board.

In an ordinance notified on April 4, the government amended the Cinematograph Act, 1952 to say that filmmakers aggrieved by the decision of the Central Board of Film Certification will now have to approach high courts instead of the FCAT for redressal of their grievances.

The FCAT is one of the tribunals abolished by the government through the Tribunals Reforms (Rationalisation and Conditions of Service) Ordinance, 2021.

A bill to abolish tribunals in which the public was not a litigant was moved by MoS finance Anurag Thakur during the Budget session of Parliament this year. Since the bill could not be passed during the session, the government issued an ordinance to bring about the changes proposed in the bill.

Among those who expressed concern over the abolition of the FCAT were filmmakers Hansal Mehta, Vishal Bhardwaj and Anurag Kashyap,. Mehta, who has made films like ‘Aligarh’ and ‘Shahid’ said abolishing the tribunal and asking filmmakers to take their complaints to the HC would only delay the process of settling disputes. “Do the high courts have a lot of time to address film certification grievances? How many film producers will have the means to approach the courts?”, he said on Twitter.

Bhardwaj also tweeted. “Such a sad day for cinema. Film Certification Appellate Tribunal Abolished | 6 April, 2021,” he said. Film trade analyst Girish Johar also said he was hopeful filmmakers would get an alternative platform to address their grievances. “With FCAT dissolved by the govt, maybe a larger body will come up. (Perhaps another body will be) set up by Govt which will not only address censor grievances of films, but also issues regarding content on OTT, short films, social media and such other content as well,” he said on Twitter.

The legal fraternity also argued that the shift would add to the courts’ already heavy burden. Advocate Apar Gupta of the Internet Freedom foundation, said, “The abolition of the Film Certification Appellate Tribunal is likely to increase further delay, costs and indeterminacy for filmmakers. The writ jurisdiction of the high court will be an inadequate basis to remedy it…. While in principle there are strong arguments for the abolition of tribunals, but — till film certification is mandatory —the FCAT was largely an imperfect but a functional body…,” he added.

Russia to boost ties with Pakistan

Russia’s foreign minister Sergey Lavrov said Moscow and Islamabad will boost ties in the fight against terrorism, with Russia providing unspecified military equipment to Pakistan and the two holding joint exercises at sea and in the mountains. It’s the first visit by a Russian foreign minister in nine years, part of a warming of frosty ties. It comes as Moscow seeks to increase its stature in the region, particularly in Afghanistan, where it seeks to inject itself as a key player in bid to find a peaceful end to decades of war. “We stand ready to strengthen the anti-terrorist potential of Pakistan, including by supplying Pakistan with special military equipment,” he said, without giving details about the equipment.

A statement from the Pakistan military after Lavrov’s talks with army chief, General Qamar Javed Bajwa, said they discussed “enhanced defence and security cooperation, regional security, particularly Afghan peace process”. Bajwa also reportedly told Lavrov that Pakistan wants regional cooperation, though he did not mention Pakistan’s uneasy relationship with neighbour India.

Russia is also building a gas pipeline between Karachi and Lahore. Islamabad will also buy 5 million doses of the Russia’s Sputnik V vaccine

RBI holds rates steady

The RBI kept key policy rates unchanged to support growth, while unveiling a Rs 1lakh crore plan to purchase government bonds from banks, aimed at providing liquidity and calming financial markets.

This is the first time the RBI is directly using its balance sheet to help the government’s borrowing plan without hurting the market. It seeks to ensure sufficient liquidity in the system by funding banks to buy almost a third of the Rs 3.5 lakh crore government securities due to hit the market by June.

The monetary policy committee also held interest rates steady, promising to support the economy through an easy policy stance, but cautioned against the recent surge in Covid-19 cases and hoped the acceleration in the vaccination drive will help tackle the situation.