New Delhi: Even as India’s central bank curbed money supply to tame soaring inflation, Prime Minister Manmohan Singh tried another approach to combat prices by asking industry to forsake short-term gains for long-term stability and pass on the benefits of tax and duty cuts to consumers.
Inflation “has consequences for growth, it has consequences for income distribution and it has consequences for your competitiveness,” Singh told businessmen at a gathering of the Confederation of Indian Industry (CII), a lobby group on Tuesday.
“Industry and trade must eschew the temptation of seeking short-term gains and should cooperate with the government to ensure long-term stability of the growth process,” Singh said.
For the future: Prime Minister Manmohan Singh at a CII meeting in New Delhi on Tuesday. He asked industry to cooperate with the government to ensure the country’s long-term growth.
Inflation as been on the rise through 2008.
Inflation, as measured by an increase in the wholesale price index, a key measure of inflation in India, rose to 7.33% in the week ended April 12 from a year ago. It has been hovering above 7% for the past month.
Prices of food grain, crude oil and metals have increased by double-digit percentage points in the last quarter, prompting Singh’s government to ban exports of commodities such as cement and rice, and reduce or scrap import duties on others items in an effort to keep prices down.
While saying that the “world community has not done enough to address this challenge,” Singh asked businessmen to “absorb, to the extent possible, the rise in input costs by laying emphasis on improved productivity”.
Singh’s comment come at a time when businessmen are increasingly asking for interest rate reductions to boost demand in key sectors such as housing and automobiles, where consumption has been hit because of increasing cost on servicing loans.
“Higher interest rates will have devastating consequences. Industry cannot live with the current interest rates,” Sunil Bharti Mittal, CII president and chairman of Bharti Enterprises Ltd, said at the same meeting. “My request would be not to stop the money supply in the system.”
The Reserve Bank of India has in the past raised interest rates to curb rising prices, but the higher rates have dampened consumer demand in industries where a majority of the goods are bought on consumer credit. Automobile sales, a measure of economic growth, have slipped 4.7% in the fiscal year ended 31 March 31 compared with a year ago.
“If it helps the country and the economy in the long run, I don’t think it really is a big thing for corporates to take a big hit in the short-term,” said Pawan Munjal, managing director of Hero Honda Motors Ltd, which makeshalf the motorcycles sold in the country. “But I am hoping for some fiscal measures which will bring growth back in the economy.”
The central bank left the repurchase rate, or repo rate, untouched in Tuesday’s policy, but raised the banks’ reserve requirements by 25 basis points (quarter of a percentage point), the sixth time in the past year, to absorb excess liquidity in the economy.
Kartik Goyal of Bloomberg contributed to this story.