India’s wholesale price inflation (WPI) climbed to 1.84% in September, driven primarily by rising prices of food articles and select manufacturing sectors, according to government data released on Monday.
The inflation rate in September marked an increase from 1.31% in August and 2.04% in July. The month-over-month change in the WPI index was a modest 0.06% compared to August.
The rise in WPI was largely fueled by higher prices of food articles, food products, motor vehicles, machinery, and equipment. The WPI for primary articles rose by 0.41%, reaching 195.7 in September, up from 194.9 in August. Notable increases were observed in the prices of minerals (1.83%), non-food articles (1.31%), and food articles (0.86%).
Conversely, the prices of crude petroleum and natural gas fell by 5.74% in September compared to the previous month. The fuel and power index declined by 0.81% to 146.9 in September, despite a 1.34% rise in electricity prices. The price of mineral oils dropped by 1.72%, while the coal index remained steady at 135.6.
In the manufacturing sector, the index for manufactured products increased by 0.14% to 141.8 in September. Key groups contributing to this rise included the manufacture of food products, non-metallic mineral products, and electronic goods, while the prices of basic metals, textiles, motor vehicles, and chemical products saw declines.
The WPI food index, which tracks prices of both food articles and manufactured food products, rose from 193.2 in August to 195.3 in September. The annual inflation rate based on the WPI Food Index surged to 9.47% in September, up sharply from 3.26% in August.
The Wholesale Price Index measures price changes in goods traded in bulk by wholesale businesses with other companies.
Notwithstanding last week’s erosion of Rs.1 lakh in market value, Indian stock markets are expected to navigate a crucial week ahead, with domestic and global economic indicators, especially Israeli-centric moves, taking center stage.
Key drivers for market movements include India’s Wholesale Price Index (WPI) inflation and Consumer Price Index (CPI) inflation data for September, as well as updates on bank loan and deposit growth. Alongside these domestic cues, Q2 earnings results from major Indian companies and global developments, particularly from the US, China, and Japan, will heavily influence market sentiment.
The Q2 earnings season has officially begun, and several important reports are expected in the coming week. Analysts suggest these results could trigger sector-specific movements as investors digest the performances of companies across various industries.
In addition to corporate earnings, fluctuations in global crude oil prices, movements in the dollar index, and foreign institutional investor (FII) activity are likely to play a role in shaping the market’s trajectory. Over the past week, FIIs offloaded stocks worth Rs 28,000 crore, though domestic institutional investors (DIIs) stepped in with net purchases of over Rs 31,000 crore, providing some support to the market.
The market experienced consolidation last week after a sharp correction from its recent all-time highs in both the Nifty and Sensex. Although the week started with a decline, the indices recovered from lower levels by the end of the week.
Santosh Meena, Head of Research at Swastika Investmart, said that technically, the Nifty index has found near-term support around the 24,750 level. He added, “To regain momentum, the Nifty must surpass resistance levels at 25,330 and 25,500. If it falls below 24,750, further selling pressure could push the index toward 24,440 and 24,100.”
Palka Arora Chopra, Director at Master Capital Services, pointed out that Bank Nifty is trading within a parallel channel and remains above its weekly 21-day exponential moving average (EMA), signaling a positive trend. “Support is seen at 50,600, with potential downside risk toward 50,000 if breached. On the upside, resistance is at 51,700, and a breakout could push the index to 52,200. The market may trade sideways in the near term, with a buy-on-dips strategy likely to be effective,” she noted.
On the macroeconomic front, the Reserve Bank of India (RBI) held its key interest rates steady last week, shifting its stance to “neutral.” This shift has raised expectations for possible rate cuts as early as December. The central bank maintained its GDP growth forecast for FY25 at 7.2 percent, while keeping the CPI inflation target unchanged at 4.5 percent.
With a mix of corporate earnings and significant economic data on the horizon, investors will be closely monitoring market signals to gauge the near-term outlook.
Wall Street’s main indexes opened lower on Wednesday after escalation in geopolitical tensions in the Middle East though markets are likely not to come under sway. Here’s the impact visible so far and the possible future scenarios:
Israeli Retaliation: Iran’s missile strike on Israel, involving 180 ballistic missiles, significantly raises the chances of an Israeli counterattack. A likely target could be Iran’s Kharg Island facility, which handles 90% of the country’s oil exports.
Economic Risk: If Israel strikes and Iran responds by restricting access to the Strait of Hormuz—through which 20% of the world’s daily oil supply passes—crude oil prices could surge above $100 per barrel, similar to the 2022 spike following Russia’s invasion of Ukraine.
Central Bankers on Edge: The U.S. Federal Reserve and European Central Bank (ECB) are closely monitoring these developments. Energy price hikes from a prolonged conflict could derail plans to reduce interest rates, potentially reigniting inflation that central banks have worked hard to control.
Energy Supply Shock: Despite current stability—due to minimal casualties and Israel’s potential focus on Hezbollah in Lebanon rather than direct strikes on Iran—a severe disruption in oil exports would trigger energy supply shocks. Saudi Arabia’s ability to increase oil production could soften the blow, but sustained tensions could strain global supplies.
Inflation Dilemma: Central banks, especially in the U.S. and Europe, struggled to manage energy shocks during the 2022 power crisis, which led to inflation spiking to high-single-digit levels. A similar surge, along with other inflationary factors like the U.S. longshoremen strike, could force central bankers into a tough choice: either continue rate cuts and risk further inflation or pause/raise rates and push the economy toward recession.
Investor Sentiment: As of now, markets seem unaffected by these risks. In Europe, traders expect the ECB to cut rates again on October 17, while U.S. derivative prices suggest the Fed’s rates could fall to 3% by October 2025 from the current 4.9%.
Geopolitical Ripple Effect: Israeli Prime Minister Benjamin Netanyahu vowed Iran would pay for the attack, while Tehran warned of “vast destruction” in case of retaliation, signaling the possibility of a wider regional conflict. Any involvement by Israel’s allies could lead to a broader confrontation, further unsettling global markets.
Immediate Market Impact: Oil prices have already risen by 5%, with Brent crude trading at $75.3 per barrel amid concerns about escalating tensions.
Possible Future Scenarios
Surge in Oil Prices: A direct strike on Iranian infrastructure, or a disruption in the Strait of Hormuz, could send oil prices soaring above $100 per barrel. This would have immediate inflationary consequences for the global economy, forcing central banks to reconsider planned interest rate cuts.
Inflationary Pressures: A prolonged Middle East conflict could trigger another energy crisis, worsening inflation in the U.S. and Europe. Central banks may be forced to halt or reverse rate-cutting plans, risking a global economic slowdown or recession.
Geopolitical Instability: Any military escalation between Israel and Iran could lead to broader regional conflict, drawing in global powers and further disrupting oil supplies. This could amplify investor fears and market volatility.
Delayed Monetary Easing: If inflation spikes due to rising energy costs, the U.S. Federal Reserve and ECB may delay or slow down their plans for monetary easing, prolonging high borrowing costs and hindering economic recovery efforts. Even RBI might delay its decision to ease interest rate cuts now.
Internet banking facility to be started for Regional Rural Banks’ customers.
Regulation of offline payment aggregators proposed.
Repo Rate hiked to 5.90%
The repo rate, the rate at which RBI lends money to commercial banks, has been hiked by 50 basis points again. Considering the prevailing adverse global environment, resilience in domestic economic activity, uncomfortably high inflation level, the RBI has hiked the policy repo rate by 50 basis points, to 5.40%.
Consequently, the standing deposit facility (SDF) rate stands adjusted to 5.65% and the marginal standing facility (MSF) rate and the Bank Rate to 6.15%. The Monetary Policy Committee has decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth, stated RBI Governor Shaktikanta Das.
The Governor announced a series of four additional measures, as given below.
1. Discussion paper on Expected Loss-Based Approach to be released for loan-loss provisioning by banks
Banks currently follow incurred-loss approach, where provisions are made after stress has actually materialized, this is to be replaced by a more prudent approach which requires banks to make provisions based on assessment of probable losses.
2. Discussion paper on securitization of Stressed Assets Framework (SSAF) to be released.
Revised framework for securitization of stressed assets was issued in Sep 2021, it has now been decided to introduce a framework for securitization of stressed assets, this will provide alternate mechanism for securitization of NPAs in addition to existing ARC route.
3. Internet banking facility for customers of Regional Rural Banks.
RRBs are currently allowed to provide internet banking facility to customers subject to fulfillment of certain criteria, to spread digital banking in rural areas, these criteria are being rationalized, revised guidelines to be issued separately.
4. Regulation of offline payment aggregators.
Online Payment Aggregators (PAs) have been brought under the purview of RBI regulations since March 2020. It is now proposed to extend these regulations to offline PAs, who handle proximity/ face-to-face transactions. This measure is expected to bring in regulatory synergy and convergence on data standards.
Growth Projection – 7.0% for 2022-23
The Governor informed that the central bank’s growth projection for the Indian economy for 2022-23 is projected at 7.0 per cent with Q2 at 6.3 per cent; Q3 at 4.6 per cent; and Q4:2022-23 at 4.6 per cent, with risks broadly balanced.
The growth for Q1 of 2023-24 is projected at 7.2 per cent.
Against the current challenging global environment, economic activity in India remains stable, stated the RBI Governor. “While real GDP in first quarter of this year turned out to be lower than expectations, it is perhaps the highest among major global economies”, he added.
Inflation
Inflation inched up to 7.0 per cent in August from 6.7 per cent in July, stated the RBI Governor. Global geopolitical developments are weighing heavily on the domestic inflation trajectory, he said.
The RBI Governor stated that monetary policy has to carry forward its calibrated action on policy rates and liquidity conditions consistent with the evolving inflation growth dynamics. It must remain alert and nimble, he stated.
The government-run small savings schemes remained to provide the same interest rates since the past two years though the bank fixed deposit rates have considerably increased the interest rate.
The small savings schemes’ interest rates were last revised in the first quarter of 2020-21, though banks have drastically hiked their home loan and term deposit rates after the Reserve Bank of India (RBI) raised its repo rate by 140 basis points since May 2022.
Small savings schemes like Public Provident Fund (PPF), National Savings Certificate (NSC), Post Office Savings Scheme and Sukanya Samriddhi Yojana are vital savings instruments for the common man, as they provide long-term benefits.
Here are the current interest rates of key small savings schemes:
* Public Provident Fund (PPF): 7.1 per cent
* National Savings Certificate (NSC): 6.8 per cent
* Post Office Monthly Income Scheme: 6.6 per cent
* Sukanya Samriddhi Yojana: 7.6 per cent
* Five-year Senior Citizens Saving Scheme: 7.4 per cent
* Kisan Vikas Patra: 6.9 per cent
The RBI had brought down its benchmark repo rate by 75 basis points to 4.40 per cent on March 27, 2020 — just three days after a nationwide lockdown was announced but the government had not reduced interest rates of small savings schemes, keeping in mind the interests of the pensioners.
RBI sources said the government will monitor inflation as well as the liquidity position before taking any decision to raise interest rates of small savings schemes. “Depending on how much inflation rises and whether there is tightening of liquidity position in future, the government may take a call on small savings schemes rates,” said a senior banking official told IANS.
On June 30, 2022, the Finance Ministry had notified that interest rates of small savings schemes have been kept unchanged for the July-September quarter of the current fiscal, effective from July 1.
“The rates of interest on various small saving schemes for the second quarter of the financial year 2022-23, starting July 1, and ending September 30, shall remain unchanged from those notified for the first quarter (April 1 to June 30) for FY 2022-23,” the Finance Ministry notification had said.
Unlike what Congress proposed as a simple three-tier GST capping at 18%, the BJP-led NDA government has made it 4-slab and added 28% slab imposing one of the worst taxation system in the world, said Congress leader Randeep Singh Surjewala.
Besides the Goods and Services Tax (GST), the cess included, some products will be as costlier as 43% more than the existing prices, he said. The cascading effect will be another standstill in economic growth as it would affect the common man and daily purchasing power of many people, he said.
While the livelihood of shopkeepers, traders, micro and small businesses is at stake, the new tax regime defeats the very purpose of simplifying the tax structure. Addressing a Traders Sammelan of ‘Vyapar Bachao-Dukandar Bachao’ protest in Haryana, he said, “The GST in its current form will be a blow to the farmers, textile sector, small and medium businesses. It will lead to run away inflation for all goods of mass consumption.”
He revealed that the original proposal made by the UPA government was simple, transparent and not at all complicated. But the new BJP framed GST requires 37 returns to be filed by every taxpayer per year. “In case, a taxpayer is doing business in all 36 states/UTs, it will be 1,332 returns, which is shocking,” he revealed.
The GST is against the basic needs of common man — roti, kapda aur makaan — as all these sectors are set for shocking rise in costs, he said. Giving examples, he said, “daily use items” like shampoos, deodrant attract 28 per cent, ACs/TVs/washing machines too attract 28%, furniture 28 %, computers/printers 28% and even small cars attract 28% and questioned the rationale in attacking the middle class which consumes most of these items.
He pointed out that even sanitary napkins, which are usually kept outside the tax regimes in many advanced and even poorer countries have been put under 12% tax regime on par with shoes and footwear. Even dialysis/blood test/X-ray/ultrasound etc. come under the same category, smacking the irrational treatment of medical services in the country, which may increase the medical bills for the common man.
Daily food items like tea/coffee/butter/biscuit/ curd/sweets/juices attract 12 pc to 28 pc, revealing the mindless aggressive attitude of the policy makers and tax administrators.
“Does it make sense to tax mineral water at 18 per cent even when caviar and prawns are taxed at 12 per cent or even when exotic imported fruits and vegetables are taxed at 0 per cent,” he asked.
Giving an example of taxing almonds and dry fruits at 12 per cent and cashew nuts at 5 per cent, he questioned the rationale behind such decision-making. It is everybody’s knowledge that almonds and dry fruits are good for health while cashew is fatty food and not advised for good health.
He questioned tax on man-made fiber and yarn, dyeing and printing and embroidery at 18% while the end product fabric is only 5 per cent, which means the service sector in textile would be hit badly and many may loose jobs.
While Indian farmer can’t compete with global farmer as there is a massive shortage of cold storage units in the country coupled with high indebtedness and suicides among the farmers, the government has imposed 18% tax on construction of cold storage units, which is more harmful to India and may increase imports.
This is what “Modi government’s method of governance: long on talks and short on delivery,” he told the protesters.
