The Hindu : National : Chidambaram promises steps to contain inflation

Online edition of India's National Newspaper
Monday, Sep 13, 2004

National

National

Chidambaram promises steps to contain inflation

NEW DELHI, SEPT. 12. A day after the Reserve Bank of India hiked the cash reserve ratio (CRR) to check excess liquidity, Finance Minister P. Chidambaram today said more measured steps would be taken to contain inflation that is shooting up mainly because of external factors, especially the unbridled surge in global crude oil prices.

The RBI Governor had taken steps to raise the CRR by 0.5 per cent in two tranches. ``We believe this will have an impact. It would suck out the Rs. 8,000 crore excess liquidity. But people will have to be patient,'' he told PTI.

Inflation .

Tracing the origin of the current inflation that has touched 8.33 per cent, Mr. Chidambaram attributed the surge in prices to two factors — external, over which the Government had no control, and the inherited problem of liquidity estimated at Rs. 60,000 crore of excess money supply in the economy.

This is not the first time that inflation has breached the eight per cent mark in recent years, officials said. It touched 8.84 on January 13, 2001, and the trend continued for a month till February 17.

Also the average inflation during 2000-01 hovered around seven per cent, without the external factor of shooting oil prices.

The single biggest contributor to the sharp rise in inflation, the Government feels, is the crude oil prices ruling at $40 to $44 a barrel.

Banks will be hit

Official sources admitted that the decision to hike CRR would hit banks' profitability. They estimated the figure to be around Rs. 350 crore.

On the overall economic situation, the sources said the performance was ``heart-warming.'' Inflation was the ``fly in the ointment''.

All the economic indicators had shown marked improvement during April-July 2004, as compared to the corresponding period last year. The economy achieved a growth of 7.8 per cent during April-July 2004, as against 5.9 per cent the previous year.

Likewise, manufacturing grew by 8 per cent as against 6.4 per cent, electricity 7.9 per cent as against 2.7 per cent, mining 5.2 per cent as against 4.8 per cent and capital goods 14.7 per cent as against 9.1 per cent.

Printer friendly page
Send this article to Friends by E-Mail

National