The Hindu : National : `Government will get a grip on inflation in due course'

Online edition of India's National Newspaper
Wednesday, Dec 15, 2004

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National

`Government will get a grip on inflation in due course'

By Our Special Correspondent

NEW DELHI, DEC. 14. The Union Finance Minister, P. Chidambaram, said that two of the three factors contributing to high inflation could not be controlled by levers of economic management, but was nevertheless hopeful that the Government would get a grip on the problem in due course. "We will do whatever means are possible to control prices," he said, during a brief discussion on the price rise in the Rajya Sabha today.

Listing the three factors impacting the rate of inflation — deficient monsoon, the surge in crude prices and excess liquidity due to foreign exchange inflow — Mr. Chidambaram said the Government had done its best to offset the impact of the first two and was engaged in sucking out the excess liquidity from the monetary system.

The "real problem" was the high crude price and the Government and the oil companies had taken a hit of Rs. 25,000 crores to partly shield the common man. "I can take a bigger hit but then there will not be enough for the food for work programme, Sarva Shiksha Abhiyan and the mid-day meal scheme. I'm sorry the remainder was passed on to the common man." The Government was committed to passing on the "beneficial cascading effect" if crude prices reverted to the 2003-04 levels, he added.

The deficient south-west monsoon gravely affected the kharif crop, giving rise to inflationary expectations. He hoped that the rabi crop would make up for most of the kharif crop deficiency with a good north-east monsoon. "When seasonal factors play themselves out, inflation will be moderated."

The Government was attending to liquidity management due to the increase in foreign reserves. Giving credit to the previous Government for beginning the process of sucking excess liquidity estimated at Rs. 80,000 crores last fiscal, Mr. Chidambaram said Rs. 50,000 crores had been mopped up by the market stabilisation scheme and about Rs. 9,000 crores by increasing the cash reserve ratio. "There is still some liquidity in the market but it has to be managed very carefully," he said, adding that the week ended, had brought in Rs. 18,000 crores due to the inflow of $ 3.75 billions to the foreign exchange reserves.

The prices of some commodities were a cause for concern, but imports would dampen the rates because many of them like jowar were not internationally traded.

In the case of other commodities like tea, prices had dipped and come back to previous levels. Though there was some impact on inflation, this was good news for the producers.

Initiating the discussion, the Bharatiya Janata Party leader, Murli Manohar Joshi, said the Government was trying to balance itself between two stools — the CMP and the CPM — and accused it of mismanaging the economy.

He also charged the Left parties with taking one position in the House and another outside it. The government's taxation policies had fuelled inflation and hit the common man. Dr. Joshi suggested that the rupee be revalued to control price rise. "Unless inflation is managed well, the UPA Government would pay the price for it."

"There is price rise in almost every sector. I don't think the Government will be able to achieve even the six per cent growth rate," he said.

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