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Govt mulls ways to fight rising prices

Govt mulls ways to fight rising prices
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First Published: Tue, Apr 01 2008. 01 15 AM IST

Updated: Tue, Apr 01 2008. 01 15 AM IST
New Delhi: Even as the government sought to weather the growing political storm arising from soaring inflation, the Reserve Bank of India (RBI) on Monday said it was keeping a close watch on the growing inflationary pressures and how these could adversely impact “inflationary expectations” in the economy.
“We are very, very concerned about the impact of the recent spurt in inflationary expectations,” RBI governor Y.V. Reddy said in Mumbai. “We have to make sure that aggregate demand continues to be consistent with supply side initiatives by the government.”
Inflationary expectations or the expectations lenders or borrowers have about inflation could result in a change in their behaviour. In the normal course, this would mean lenders demand more returns on funds and that borrowers direct their investments to the least risky option.
According to the RBI governor, the present rate of inflation, 6.68% for the week ended 15 March as measured by the wholesale price index, was “unacceptably high” and was caused largely by a spurt in global prices of food, fuel and metals.
Meanwhile, the cabinet committee on prices, chaired by Prime Minister Manmohan Singh, met late on Monday. The meeting had not concluded till 10.50pm; on the agenda was a range of supply management options including empowering various arms of the government to use physical controls to check the purchase and sale prices of goods and commodities. It also discussed a proposal to further reduce import duties on essential items of consumption.
The government has already cut import duties on edible oils; stopped exports of wheat, basmati rice, sugar and edible oils; and raised the export price of rice so as to allow only the highest grade basmati to be sold. The commerce ministry has also announced a suspension of refunds on exports of steel, cement, chrome and manganese ore and several other products, a measure that it said was focused on curbing inflation.
The government also called for a meeting of the three national commodity exchanges to seek their views on whether futures trading could be banned in a few more essential commodities to check prices. Last year, the government banned futures trading in rice, wheat and pulses.
Despite the significant potential political repercussions of allowing prices to rise in a year several states go to the polls, a Congress spokesperson said there was no need to panic. “The finance minister is on top of the situation, which would ease over the next few weeks, as soon as the rabi (winter season) crop hits the market,” said Manish Tiwari.
However, M.A. Kharabela Swain, a Lok Sabha member of the Bharatiya Janata Party and a member of the Parliamentary Standing Committee on Finance, said the government had sought high growth and low inflation but would end up with a situation where inflation was high and growth, low.
Saumitra Chaudhuri, member, Prime Minister’s Economic Advisory Council, said : “Inflation numbers are definitely a major worry, especially since there are here to stay for some time.” He added that “the government would probably do several things, not only on the fiscal side but monetary too— perhaps even hike interest rates.”
Inflation has been on a rebound this year, climbing above 4% since January and touching close to 7% mid-March. Global commodity prices are at an all-time high, fuelled mainly by the strongest ever demand and partly by speculation. The increase in prices is most visible in metals, pulses, cooking oil, most of which is imported, and crude. But even in some commodities such as rice, where domestic production is more than adequate, exports and high global prices have created supply problems.
Udit Misra, Sangeeta Singh, Bloomberg and PTI contributed to this story.
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First Published: Tue, Apr 01 2008. 01 15 AM IST