NEW DELHI: India’s Finance Minister Palaniappan Chidambaram has asked companies to limit price increases to curb inflation running close to a two-year high.
The government is “confident” about containing inflation, Chidambaram said on 5 March in New Delhi. While the government’s call to limit increases in cement prices has yet to bear results, steel companies agreed to cut some rates.
Record economic growth, boosted by the fastest increase in bank loans in more than three decades and higher salaries, have stoked prices of agricultural and manufactured products. Inflation, at 6.05%, stayed above the Reserve Bank of India’s tolerance level of 5% since September and the central bank may raise its key overnight lending rate for the second time this year to curb prices.
“Inflationary pressures show no signs of relenting yet, with the wholesale price inflation ruling well above the 6% mark,” Sumita Kale, chief economist at policy research group Indicus Analytics said. “We don’t expect inflation returning to its 5% levels for another month at least.”
Prime Minister Manmohan Singh’s Indian National Congress party lost two state elections last week as inflation eroded the spending power of people.
“The government owes responsibility to the people to avoid any unreasonable increase in prices,”said Chidambaram at the meeting of an industry group on 5 March, justifying the dual tax the government plans to impose on cement makers. “Industry must cooperate in moderating inflation. We are confident we will moderate inflation,” he added.
Indian steelmakers agreed to lower prices to help curb inflation, less than a week after raising them. Prices of hot-rolled coils, an industry benchmark, will be cut by Rs500 a ton to Rs27,000 a metric ton, R. S. Pandey, secretary, Steel Ministry said in New Delhi on 5 March.
Tata Steel Ltd, India’s second-biggest steelmaker, Essar Ltd, the third-biggest, and JSW Ltd, the fourth-biggest, were among producers that raised prices to match global rates.
Crisil Ltd, the Indian unit of Standard & Poor’s, said on 5 March that the economy was vulnerable to “overheating” and the growth momentum was susceptible to high inflation.
Cement companies raised prices as much as 6% because of higher taxes imposed by the government in the budget, reported a leading newspaper. This came after the government sought to hold prices by imposing a dual tax rate.
Indian carmakers, including Maruti Udyog Ltd, the nation’s biggest carmaker, Tata Motors Ltd, India’s biggest truck and bus maker, and the local unit of Hyundai Motor Co., said they will increase prices after the government imposed an additional education surcharge.
Chidambaram expects companies in India to match this fiscal year’s earnings next year. He is depending on growth to collect additional taxes needed to boost spending on roads and ports and reduce infrastructure constraints in the year starting 1 April.
Growth in India’s $854 billion economy has averaged 8.6% in the past four years, the quickest pace since independence in 1947.