Inflation to come in way of interest cut: Survey

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New Delhi, Mar 16 (UNI) With crude oil price touching 110 dollars a barrel and commodity markets touching new high, the inflationary pressure is likely to continue disallowing the RBI to opt for cut in interest rates.

According to a survey by industry body Assocham, with signals of a slowdown, 85 per cent of the respondents said despite the government announcing fiscal measures in the Union Budget, the Indian economy cannot remain insulated from a sharp rise in global commodity prices.

Inflation seems to be breaching the tolerant level set by the RBI. Under these circumstances, policymakers would refrain from moderating the interest rates to ward off the slowdown concerns, especially in an election year when several of the state assemblies have to go for polls, 74 per cent of the CEOs said.

The industrial production in January this year has grown by mere 5.3 per cent as compared to 11.6 per cent a year ago. The growth in the manufacturing sector has halved to 5.9 per cent in January this year compared to 12.3 per cent growth in FY07.

''Government is confronted with the dilemma of keeping the inflation rate low and prevent further hardening of the interest rates, hence they are left with little elbow room,'' Assocham President Venugopal N Dhoot said in a statement.

Inflation as measured by the change in the wholesale prices has touched a high of 5.11 per cent for the week ended March 1, as compared to 5.02 per cent in the previous week.

The prices of primary articles have increased by 6.9 per cent over the corresponding week of the last month, while the fuel prices have risen by 5.4 per cent as a result of the increase in the retail prices of petrol and diesel.

About 67 per cent of the respondents said while a robust nine per cent growth rate in the economy is important, the government should accord top priority to keeping the inflation rate low as it hurts the people most.

The measures like reduction in general CENVAT rate to 14 per cent from 16 per cent and reduction in excise duties in auto and pharma sectors, certain items of mass consumption were introduced in the Union Budget 2008-09.

Almost 83 per cent of the respondents said such measures may not be able to control the inflationary pressures as not all companies would be able to pass the excise benefits to the consumers due to declining margins.

About 55 per cent of the respondents felt a tolerable rate of inflation should be 3.5-four per cent, while another 40 per cent believe that a rapidly growing economy like India can sustain 4.5 per cent inflation level as well.

The Reserve Bank has set the target of five per cent inflation.

As inflation becomes a global concern with the major economies like the US, China and Europe, grappling with it, India will also find it difficult to insulate itself from global pressures and maintain economic buoyancy, the participants stated.

The consumer prices in China have touched an 11-year high of 8.7 per cent in the month of February, after rising by 7.1 per cent in January.

The recession-prone US economy recorded 4.3 per cent inflation in consumer goods as compared to 2.1 per cent a year ago, while in the Euro area, the average rise in inflation was 3.2 per cent comapred to 1.8 per cent in January 2007.

Some of the Asian countries like Indonesia and Thailand are also facing inflation rate as high as 7.4 per cent and 4.3 per cent.

The average inflation, at international level, in case of food products has reached 25 per cent in the period April-December 2007-08.

Food inflation in India during this period was 5.1 per cent.

The global price rise in case of commodities like fats and oils, grains has been as high as 56 per cent and 28 per cent.

In India, the rates were much lower at 11.8 per cent and 5.3 per cent as a result of the inflation-targeted policy measures taken by the Government and Reserve Bank.

The world over inflation in the first nine months of current fiscal on account of increase in the petroleum prices has been 17 per cent.

The pressure on the energy prices is expected to further intensify as the crude oil prices have crossed 110 dollars per barrel mark.

UNI SR PBB KN1450

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