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What cartel?

The Government is in a flap over the runaway inflation rate. The villains of the piece, it has decided, are cement and steel companies, which, Finance Minister P. Chidambaram announced in Parliament, have formed cartels to push up the prices of these commodities.

Print Edition: May 18, 2008

The Government is in a flap over the runaway inflation rate. The villains of the piece, it has decided, are cement and steel companies, which, Finance Minister P. Chidambaram announced in Parliament, have formed cartels to push up the prices of these commodities. Business Today investigated this allegation and found that the government was barking up the wrong tree (see Commodity Cartels: Fact or Fiction? page 72). While it is true that cement and steel prices have, indeed, contributed to the rise in inflation, the charge that these industries have formed cartels is totally baseless. Rather, a combination of strong and sustained demand, supply-constraints, galloping input prices and ill-conceived government policies and levies has pushed the prices of these commodities up. By trying to browbeat the industry into cutting prices, the government is hoping to achieve its immediate goal of lowering the inflation rate, but this step will actually hurt the country even more over the long term. But with 10 Assembly elections and the general elections due over the next 12 months, the UPA government obviously couldn’t care less.

Inflation woes: Blame it on steel and cement companies
Blame it on steel and cement companies
The Indian economy has grown rapidly over the last five-to-six years, and, despite fears of a slowdown, looks set to continue on the growth path, albeit at a slower pace. Demand for these commodities, thus, will continue to remain high. The only way to remedy the situation is to encourage India Inc. to add fresh capacities. The cement industry is already doing that. Over 100 million tonne of fresh capacity has been announced and much of this will go on stream over the next three-to-four years. The steel industry has also announced plans to set up close to 100 million tonne of fresh capacity, but it is hamstrung by the lethargic government response to its plans.

Both these industries have been crying out for adequate coal and iron ore linkages, but the government has been sitting on requests for these for years now. Then, the land acquisition plans of several large domestic and MNC steel companies are held up by the absence of a coherent rehabilitation and resettlement policy for land losers. These delays will only exacerbate the shortages in these two important commodities and lead to even higher prices in future.

The government should immediately address the policy vacuum and do so on a war footing so that India Inc. can get down to its business. This will not make headlines, as the dramatic accusation about cartel formation did, but it will get the job done.

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