Finweek English Edition - - Creating Wealth -

ECO­NOMIC CON­CERNS are also on the in­crease in China and In­dia. Of­fi­cially, China’s year-on-year inflation rate for June was given as 7,1%, against 8,7% in Fe­bru­ary. How­ever, that’s widely ques­tioned as the in­ter­na­tional driver of inflation is due to high en­ergy and com­mod­ity prices. It’s ac­cepted that the fig­ure has been ar­ti­fi­cially re­duced by about 3% to 4% due to state con­trol of prices of ma­jor food prod­ucts, such as rice and wheat. At the same time, the sub­si­dies for fuel prices have al­ready nearly dou­bled this year to US$40bn.

In In­dia there are grow­ing con­cerns fol­low­ing whole­sale inflation hav­ing shot up to 12% in July. Here, too, the gov­ern­ment sub­sidises food prices, while forc­ing state-con­trolled oil com­pa­nies to sell fuel to con­sumers at be­low cost. That’s led to a large in­crease in the bud­get deficit. It’s es­ti­mated the deficit in the cur­rent fis­cal to March 2009 could be more than 10% of In­dia’s gross do­mes­tic prod­uct.

In both coun­tries eco­nomic growth will be harmed – more so in In­dia, ow­ing to ris­ing in­ter­est rates. The Chi­nese gov­ern­ment hasn’t yet given any in­di­ca­tion it’s se­ri­ously go­ing to re­duce growth.

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