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Sunday, Feb 04, 2007
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Inflation will be contained: Manmohan

Special Correspondent

`Efforts are on to keep it down to around 5.0-5.5 per cent'

— Photo: PTI

A PROMISE: Prime Minister Manmohan Singh chairs the meeting of the Economic Advisory Council in New Delhi on Saturday. Chairman of the council C. Rangarajan is with him.

NEW DELHI: Prime Minister Manmohan Singh on Saturday declared that his Government was committed to containing inflation and would deploy on a priority basis whatever policy measures were needed to check the price spiral.

Initiating the discussions at a meeting of the Prime Minister's Economic Advisory Council (EAC) here, Dr. Singh said while the global environment was currently conducive to sustaining India's higher growth rate, it was necessary to ease the domestic constraints on growth.

In an otherwise upbeat presentation to the Prime Minister on the state of the economy in the backdrop of inflation continuing its upward surge to 6.11 per cent for the week ended January 20 mainly owing to rise in the prices of food articles, the EAC Chairman, C. Rangarajan, noted that for the short term, the key macro-economic challenge was inflation.

However, Dr. Rangarajan was hopeful that the corrective measures taken recently by the Centre and the Reserve Bank of India (RBI) would succeed in dampening inflationary expectations and contain the price spiral.

Interventions

Explaining the reasons for the inflationary surge, a statement issued later by the Prime Minister's Office (PMO) said: "While global factors and rising demand had contributed to inflation in some sectors, supply constraints had contributed to a larger extent. Easing of the supply constraint through appropriate interventions in the real economy, lower tariffs, higher agricultural and industrial productivity would ease the price pressure."

Committed to containing inflation at around 5.0-5.5 per cent this fiscal, the Government, it may be recalled, had taken a series of corrective steps by way of slashing the import duty on several items such as wheat and pulses, cement and various other essential commodities and capital goods.

The RBI followed this up by increasing the short-term overnight lending (repo) rates by 25 basis points to 7.5 per cent while reviewing the monetary and credit policy on January 31 with a view to pre-empting overheating in certain sectors of the economy.

In its assessment of the economy, the EAC noted that the per capita income growth would be more than 7 per cent in 2006 and in 2007, for the first time in 15 years. The overall economic growth, it said, was expected to be close to 9 per cent this year. The Council also reported a sharp increase in the savings rate to 35 per cent of the country's gross domestic product (GDP). This, it said, was on account of an improvement in both the private sector and government sector savings rate. Apart from Finance Minister P. Chidambaram, senior economic editors and analysts who participated in the meeting agreed with the EAC's assessment that inflation management was the key short-term priority. They advocated further trade liberalisation and other measures to increase the "competitive environment" in the economy. To sustain the growth momentum they called for acceleration of economic reforms, especially in agriculture and trade.

According to the PMO statement, they also called for increased investment in infrastructure, economic pricing of power, water and other scarce resources, reform of government and the public sector, improving the efficiency and quality of public service delivery, especially in education, health care and rural extension services. Participants also emphasised the need to encourage growth of small and medium enterprises.

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