By IANS,
New Delhi : Beleaguered by a 13-year high annual inflation at 11.05 percent, the government Saturday doled out hopes and promises to tame inflation.
Finance Minister P. Chidambaram Saturday said that the government was open to more measures such as cutting taxes, but argued that the country should not panic.
“Given the difficult circumstances, the government will take appropriate measures in order to contain and moderate inflation,” Chidambram said in a statement, adding that the country should not panic.
“We should not give room for panic. We should take steps to quell inflationary expectations. That is precisely the course that the government has adopted in the past and will adopt in the future too,” he added.
Chidambaram’s views predominated the press briefing of Finance Secretary D. Subbarao, who said: “The first line of defence for inflation is monetary measures.”
“As we cannot control the supply side, we require quick measures to control the demand side, which will be done by the Reserve Bank of India or RBI by taking monetary policy action,” the finance secretary said.
Asked about measures the RBI may possibly take, Subbarao said: “I can’t speak for the RBI, but we all know what measures the central bank is likely to take,” referring to a possible hike in interest rates.
RBI, India’s central bank, had increased the repurchase rate (repo rate) June 11 by 25 basis points to 8 percent from 7.75 percent, anticipating double-digit inflation.
The finance minister too stressed this point Friday, saying: “More strong monetary measures are needed. The government is aware of the difficulties.”
Chidambaram and Petroleum and Natural Gas Minister Murli Deora Saturday left for Jeddah, Saudi Arabia, to attend a global meet of major oil producers and consumers to discuss volatility in the oil market.
Saturday saw a flurry of top-level meetings discussing measures to rein in accelerating inflation. Chidambaram, who met Prime Minister Manmohan Singh Friday evening, held a detailed discussion with the Reserve Bank of India (RBI) governor Y. Venugopal Reddy.
Reddy met the prime minister too.
Referring to double-digit inflation, Chidambaram said: “Yesterday (Friday), the WPI (wholesale price index) for the week ending June 7, 2008 was released. Predictably, grave concern has been expressed at the rate of inflation crossing 11 per cent.”
“It is necessary to place the matter in context. The context is a relentless rise in crude oil prices,” he said, adding crude oil price rose from $98.19 per barrel on Nov 24 last year to $137.54 June 7 this year.
“Fully 94 percent of the week-on-week increase in inflation is attributable to petroleum products,” he said.
The latest WPI data showed that the government’s June 4 decision to hike diesel and petrol by Rs.3 and Rs.5 a litre, and cooking gas by Rs.50 a cylinder, had triggered the current inflationary trends.
In an assurance to people on the margins, Chidambaram said the government had adequate stocks of wheat and rice to be distributed among the poor through the public distribution system (PDS).
“We take comfort in the fact that there has been record production of wheat and paddy and we have adequate stocks of wheat and rice. We have procured 22 million tonnes of wheat and, so far 26 million tonnes of rice.”
“We will provide adequate wheat and rice to the PDS and we will also use our stocks to moderate prices in the open market. Hence, there is no cause for worry regarding wheat and rice,” Chidambaram said.
Official data put India’s rice consumption at 88.25 million tonnes in 2006-07, while advance estimates in April this year pegged rice produce at 95.68 million tonnes against 92 million tonnes in July last year.
The impact of zooming inflation was even felt in the capital market with the Sensex losing 516.7 points Friday, the biggest drop since August 2007.
Inflation is, however, not seen as a threat to the tempo of India’s gross domestic product (GDP) growth, which grew at 9 percent in 2007-08.
“Inflationary pressure will persist for the next three months, but India will continue to maintain GDP growth of 8.5 percent and see inflation at 5 to 6 percent in a year from now,” Subbarao said.