Inflation back to 2002 level at 3.03 per cent

Inflation declined to about a six-and-a-half-year low of 3.03 per cent by the third week of February as most food, fuel and manufactured items turned cheaper, justifying the RBI's rate cut move to propel growth.

With wholesale prices-based inflation coming to a level seen on 10th August, 2002, by falling 0.33 percentage points from 3.36 per cent a week ago, economists expect the RBI to further cut rates next month.


This is the fifth consecutive week that inflation has fallen.


Economists expect inflation to reach zero by this fiscal end.


While most food products in raw form saw a decline in prices, manufactured food items like sugar and ghee turned marginally expensive.


Most other manufactured products also became cheaper, with the exception of metals alloys and machine tools.


Crisil Principal Economist D K Joshi said, "There could be further rate cuts. I believe there could be a cut of 50 basis points in both the repo and reverse repo rates next month."



With inflation going below four per cent, the RBI on Wednesday cut the short-term lending and borrowing rates the repo and reverse repo by 50 basis points to arrest economic slowdown with India's GDP growth falling to over a five-year low of 5.3 per cent in Q3 of the current fiscal.


However, the central bank has noted that consumer prices are still high, but expressed the hope that they may also come down after some time.


The Reserve Bank pointed out that consumer price inflation, as reflected in various indices, is in the range of 9.85-11.62 per cent as of December 2008-January 2009 and is yet to show moderation.


"Consumer price inflation has remained at elevated level due to increase in primary articles' prices. With WPI inflation having moderated significantly, consumer price inflation may also be expected to decline, though with a lag," the RBI said.


However, it is mainly wholesale price inflation that is widely tracked.


The wholesale price index (WPI), on which inflation is based, declined by 0.1 per cent to 227.6 points for the week ended
21st February, 2009, from 227.8 points a year ago.



Among food products, vegetables turned cheaper by 3.2 per cent and fruit by little less than one per cent. Bajra, jowar and gram also became cheaper.


However, prices of maize and arhar moved up.


Among non-food items in raw form, raw silk prices declined by seven per cent, copra by three per cent and rape and mustard seed and gingelly seed by one per cent each.


In fuels, jet fuel saw a 4 per cent decline in prices, and furnace oil by one per cent.


In the manufactured goods category, sugar turned expensive by two per cent and ghee by one per cent.


Prices of machinery and machine tools also rose, but those of textiles, basic metals alloys and transport equipment and parts declined.

Satyam approved to sell 51% stake

Fraud-hit IT firm Satyam has been given the go-ahead to sell most of itself.

Indian financial authorities approved plans for the company to sell a 51% stake as it seeks to win back clients and restore customer confidence.

Reports suggest computing giant IBM and Indian engineering firm Larsen & Toubro are frontrunners for the stake.

Satyam has struggled since former boss Ramalinga Raju admitting inflating their assets by more than $1bn.

Shares in Satyam jumped 18% after the company's state-appointed board got approval to sell the majority holding.

Satyam lost more than 80% of its market value following Mr Raju's confession in January.

The auction for the stake will be global and potential buyers would need to have assets of at least $150m.

The buyer then would not be able to sell its stake for at least three years, Satyam said in a statement.

Satyam had been one the biggest players in the booming Indian IT software market, supplying back-office services to firms from around the world.

EU calls for crisis talks over GM

The European Commission has called for a crisis meeting among EU states hosting General Motors (GM) plants.

EU Industry Commissioner Guenter Verheugen said that the way GM was "dealing with the issue of Europe is not acceptable".

Earlier, the troubled carmaker's auditors said there was "substantial doubt" about the ability of General Motors to stay afloat.

Last week GM posted a $30.9bn (£21.9bn) loss for 2008.

It also warned that 2009 was set to be "challenging".

Shares in General Motors fell more than 15% in New York trading.

European worries

Earlier this week, GM's top executive warned the European divisions of General Motors (GM) could collapse within weeks without European governments' help - costing up to 300,000 jobs.

Chief operating officer Fritz Henderson also said governments should step in immediately to ensure GM Europe did not run out of money by April or May.

Mr Verheugen said: "We expect GM to disclose everything,

"What are their plans with their European daughter companies and locations? What are they doing with property rights, and especially is GM prepared to maintain responsibility for the European companies or not?"

He said that at the emergency meeting he wanted to find out "what the different member states that have GM sites are considering to do".

EU countries that have GM-related production plants include Britain, Belgium, Poland, Germany, Spain and Sweden. Some other EU states host suppliers.

Liquidation fear

Ongoing losses and the struggle to generate cash flow meant the firm's ability to continue as a going concern should be questioned, said the auditors.

The firm, which plans to cut 47,000 jobs, has said it might need another $22.6bn in government loans to survive.

It had already received $13.4bn in federal loans as it struggles in what analysts say is the worst vehicle sales market in 27 years.

GM said that its creditors had decided not to force the company to repay more than $6bn in loans following the auditor's warning, in order to let GM press the case for more government financial aid.

"The corporation's recurring losses from operations, stockholders' deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern," auditors for Deloitte & Touche wrote in the annual report.

GM reiterated on Thursday that a bankruptcy filing could lead to liquidation, as the company would not have enough funds to finance its reorganisation.

Besides, consumers could be reluctant to buy bankrupt carmakers' vehicles, GM said.

According to GM, its February sales plummeted 53% from a year earlier, while its rival Ford posted a 48% drop.

The auditors' remarks reflect comments already made by the firm about its difficulties.

GM said in its annual report: "Our future is dependent on our ability to execute our viability plan.

"If we fail to do so for any reason, we would not be able to continue as a going concern and could potentially be forced to seek relief through a filing under the US bankruptcy code."