By Arvind Padmanabhan and Prabhat Sharan, KUNA,
New Delhi/Mumbai : In an attempt to check rising prices that have become a major worry for the ruling coalition going into an election year, the Indian government Tuesday unveiled a slew of measures, both administrative and monetary, to tackle runaway inflation amid a call to industry by Prime Minister Manmohan Singh for “tightening of belts”.
From imposing export duties on some commodities like steel, cement and basmati rice announced by Finance Minister P. Chidambaram to a hike in cash reserve ratio (CRR) by the central bank, Tuesday saw India’s policy makers seeking to corrall spiralling prices that have fuelled an inflation rate of 7.33 percent.
The day started with Manmohan Singh blaming the diversion of food grain in global markets for producing fuel and high international crude oil prices for the rising prices in India, and hoping a normal monsoon would salvage the situation.
“The world economy has not done enough to address the challenge of price rise,” the prime minister told the national conference and annual session of the Confederation of Indian Industry (CII) here.
“The diversion of land from food crops to biofuels, and the increasing use of available food grain and vegetable oil for the production of biofuels, have contributed to the rise in food prices,” he said.
“A measure of sobriety in corporate lifestyles and compensation can also help cut costs and maintain the price level. This is what I mean by the tightening of belts. It helps your firms, it helps the consumer.”
Soon after, the Reserve Bank of India (RBI) announced its monetary policy for the current fiscal in which it hiked the cash reserve ratio – the minimum liquidity banks have to maintain – by a further 25 basis points to 8.25 percent with effect from May 24.
The move was aimed at contracting money supply to tame the price rise, that has pushed India’s annual rate of inflation to 40-month highs of 7.33 percent for the week ended April 12. The central bank, however, kept other key rates intact, keeping some elbow room for later.
Then Chidambaram imposed export duties on steel, cement and basmati rice and lowered tariffs on some raw materials, even as he extended the fiscal sops for software firms by a year more to spur growth. Non-basmati rice exports have already been barred.
Delivering the concluding speech on the Finance Bill, 2008 – which was later passed by the Lok Sabha – the finance minister made import of pig iron, mild steel products and semi finished products duty free against the current tariff of five percent.
He also imposed an export duty of Rs.8,000 per tonne on basmati rice, scrapped import duties on zinc and metallurgical coal and levied a 12 percent duty on cement costing Rs.250 per bag and higher.
“Despite the fiscal steps taken by us, some sectors like steel continued to exhibit sharp increase in prices. It contributed 21.3 percent to the overall inflation,” he said.
He also announced that the software technology parks scheme of 1999 that gave tax holiday on profits earned from exports by Indian information technology firms was being extended by a year. It was scheduled to expire March 31 next year.
In his speech, Chidambaram sought to allay fears over food shortage and said food production in the country had touch record levels and that 13.4 million tonnes of wheat and 22.9 million tonnes of paddy had already been procured by the government this year.
“Procurement will exceed the target.”
Speaking about the overall revenue situation, he said India’s tax collections had gone up impressively despite cuts in excise and income tax rates. Along with the expansion of taxpayer base, there had also been an upswing in compliance, he said.
“Due to this, far more money has been given to the states. More money will be allocated in the final supplementary than was budgeted.”
When opposition members and the Left parties demanded more money for health and education, the finance minister said: “If you ask whether the expenditure on health will reach six percent – the answer is yes. Has it reached? No.”
The finance minister maintained that the subsidy on food grains, fertilisers and fuel should continue but the entire burden could not be thrust on the budget. “Subsidies are rising but that decision has to be taken collectively.”
Chidambaram had earlier maintained at the CII conference that there was “no textbook answer” to the problem of inflation – a point also emphasised by Planning Commission Deputy Chairman Montek Singh Ahluwalia, who saw prices abating only over the next few weeks.
“Economy is quite conducive and inflation will certainly come down. The slowdown in world economy has led to high rise in food prices. The government is committed to handling inflation effectively,” Ahluwalia said.