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IMF: inflation needs immediate attention

A combination of steps has to be used

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.

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

The IMF official maintained that the issue of the rupee -dollar exchange rate had to be put in perspective in that while there was a fairly sharp appreciation of the rupee about this time last year, the currency had remained stable against the dollar since then.

Talking about the reform of the voting pattern, Ms. Kochhar said India’s “very important” endorsement of the reforms on Quota Voice on the eve of the Spring Meetings of the Fund and the World Bank had been a very major step forward.

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, pointing to the IMF forecasts for India. “These are very good growth rates by any measure, coming off at a blistering pace before, but still very good growth rates.”

“In India itself, the short term focus is on Inflation. I think a combination of measures would have to be used and some have already been taken... As the Prime Minister himself said banning exports, controlling prices are very short term palliative type of measures to try to solve the problems,” she said. — PTI

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