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Inflation needs immediate attention: IMF

Washington: Describing the soaring inflation in India as “a politically hot issue,” the International Monetary Fund (IMF) on Saturday asked the Indian government to take immediate steps to arrest prices before the problem becomes entrenched and spills over.

Referring to the recent IMF reports on global and regional economy which said inflation was on the higher side and requires immediate attention, senior advisor in the IMF Asia and Pacific Department, Kalpana Kochhar, said, “at 7.5 per cent (inflation rate in India) it may not seem very high but politically it is a hot issue.”

Ms. Kochhar said, “it was mainly due to food, fuel and some metals.”

The annual rate of inflation in India which was below 4 per cent in January soared to 7.41 per cent towards the end of March and is expected to move up further before beginning to cool down. Rising prices forced the government to take a host of steps including banning export of non-basmati rice, pulses, edible oil and cement to contain inflation. High inflation rate has already taken a political tinge in the country with the opposition Bharatiya Janata Party and Left allies accusing the government of its failure to check price rise.

Cast a shadow

Also, the issue is likely to caste a shadow on the upcoming Assembly elections and finally the general elections scheduled early next year.

Referring to economic performance, Ms Kochhar said: “Fiscal situation remains an issue... some progress has been made but much more needs to be done”.

There is hardly anything to derail the economic progress of India, as the underlying fundamentals of growth would not come off even if managing bumps along the way turns out to be challenging, Ms Kochhar said.

“To my mind, it is hard to see something that is significantly going to derail the progress. There are going to be bumps along the road and managing those bumps are going to be quite challenging,” she said.

But the underlying fundamental growth story has been based on productivity, investments needs and the private sector and it does not seem to be coming off, Ms Kochhar reasoned.

“Liquidity pretty high”

“It would not be unreasonable to assume that some of the credit market turmoil would spill over into India. Investment is the big story... that has been the one driving growth in the last couple of years and we need to continue that,” she said.

“You could say that if there is a big crunch on the credit markets, India could be affected. But, you have to keep in mind that the banks’ liquidity in India is still pretty high, and credit growth, although having come off, is still growing at 25 per cent,” she added.

The IMF official maintained that the issue of the rupee -dollar exchange rate has to be put in perspective in that while there was a fairly sharp appreciation of Indian rupee about this time last year, the currency has remained stable against the dollar since then. She said India continued to be an important contributor to the global economy, which, in her view, was not fully appreciated.

“There is a lot of focus on China and for very good reasons, but India is an equally big player,” Ms. Kochhar said.

“It (India) has not been such a big player in financial markets but it is a very big player in keeping up global growth,” she said. — PTI

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