Inflation soars, Govt hints at a growth sacrifice

Inflation soars, Govt hints at a growth sacrifice

Express news service

Posted online: Saturday, March 29, 2008 at 0024 hrs IST

NEW DELHI, MARCH 28
Inflation soared to 6.68%, its highest in 13 months, raising market expectations that the Reserve Bank of India may have to respond and sending the rupee to its highest in a month against the dollar.

While the rate is marginally higher than the 5.92% reported for the previous week ending on March 8, it’s above the 6.56% reported in the same week of 2007.

Union Finance Minister P Chidambaram said that the Government was prepared to give up a bit of growth to control inflation. “I assure you that the government is determined to take all measures, fiscal, monetary and supply side, to moderate inflation and if that means we have to live with slightly lesser growth so be it,” he told reporters in Mumbai.

Significantly, in a sign that prices may have begun rising earlier than previous government data suggested, the Ministry of Commerce and Industry also revised the inflation rate for the week ended January 19, 2008 to 4.45% from the 3.03 per cent reported originally.

The high inflation numbers, coming on the back of industrial production numbers that indicate a slowdown, are certain to worry the governing coalition, which hopes to be re-elected next year.

Being the fourth straight week where inflation has remained over 5%, these figures spurred the rupee upwards from Rs 40.155 to Rs 39.85 before closing the day at Rs 40.095, vis a vis the US dollar. While the central bank is expected to let the rupee appreciate further in a bid to cool down prices, monetary policy alone doesn’t hold the key to inflation control.

A closer look reveals that inflation has risen due to prices soaring across-the-board — primary articles, fuels and manufacturing products.

Food products rose 0.5% over the previous week, led by rapeseed, mustard oil, maida, atta and gur. The highest increase in the index came on account of basic metals - alloys and metal products rose a significant 4.4%.

The government has been taking a slew of steps since last month that it hopes will cool prices. After cutting import duties on edible oil yet again, it stopped exports of wheat, sugar, rice and edible oils followed by a decision yesterday to drop duty-free import benefits enjoyed by steel, cement, chrome and manganese producers.

The minimum export price for rice has also been increased today as rice supplies have become a worry across Asia.

Terming the inflation level as “a matter of serious concern.” Union Commerce and Industry Minister Kamal Nath said, “We are going to recommend scrapping of import duty on steel. The government is also looking at a proposal to ban non-basmati rice export.”

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Inflation soars, Govt hints at a growth sacrifice Express news service Posted online: Saturday, March 29, 2008 at 0024 hrs IST NEW DELHI, MARCH 28 Inflation soared to 6.68%, its highest in 13 months, raising market expectations that the Reserve Bank of India may have to respond and sending the rupee to its highest in a month against the dollar. While the rate is marginally higher than the 5.92% reported for the previous week ending on March 8, it’s above the 6.56% reported in the same week of 2007. Union Finance Minister P Chidambaram said that the Government was prepared to give up a bit of growth to control inflation. “I assure you that the government is determined to take all measures, fiscal, monetary and supply side, to moderate inflation and if that means we have to live with slightly lesser growth so be it,” he told reporters in Mumbai. Significantly, in a sign that prices may have begun rising earlier than previous government data suggested, the Ministry of Commerce and Industry also revised the inflation rate for the week ended January 19, 2008 to 4.45% from the 3.03 per cent reported originally. The high inflation numbers, coming on the back of industrial production numbers that indicate a slowdown, are certain to worry the governing coalition, which hopes to be re-elected next year. Being the fourth straight week where inflation has remained over 5%, these figures spurred the rupee upwards from Rs 40.155 to Rs 39.85 before closing the day at Rs 40.095, vis a vis the US dollar. While the central bank is expected to let the rupee appreciate further in a bid to cool down prices, monetary policy alone doesn’t hold the key to inflation control. A closer look reveals that inflation has risen due to prices soaring across-the-board — primary articles, fuels and manufacturing products. Food products rose 0.5% over the previous week, led by rapeseed, mustard oil, maida, atta and gur. The highest increase in the index came on account of basic metals - alloys and metal products rose a significant 4.4%. The government has been taking a slew of steps since last month that it hopes will cool prices. After cutting import duties on edible oil yet again, it stopped exports of wheat, sugar, rice and edible oils followed by a decision yesterday to drop duty-free import benefits enjoyed by steel, cement, chrome and manganese producers. The minimum export price for rice has also been increased today as rice supplies have become a worry across Asia. Terming the inflation level as “a matter of serious concern.” Union Commerce and Industry Minister Kamal Nath said, “We are going to recommend scrapping of import duty on steel. The government is also looking at a proposal to ban non-basmati rice export.”