Don't sacrifice policy stability while tackling inflation:PM

New Delhi, May 20 (UNI) Concerned over soarirg inflation, Prime Minister Manmohan Singh summoned Planning Commission Deputy Chairman Montek Simgh Ahluwalia to discuss the situation and the two agreed that stability of policy needs to be maintained even while tackling inflation.

At the meeting yesterday, Dr Ahluwalia made a detailed presentation before the Prime Minister on the subject and expressed the view that there was a high degree of seasonality of prices. According to this theory, the prices will continue to rise till October-November and can touch the high point of 8.5 per cent, after which they will start declining.

The inflation rate was also likely to start falling gradually, mostly as a result of the seasonal effect of the prices withering away.

Reports said the Prime Minister voiced his reservations against any further drastic administrative measures to rein in inflation.

Dr Singh was of the view that the high inflation rate was largely a result of soaring global crude oil prices as well as high world commodity prices.

A view emerged that record wheat procurement of 20 lakh tonnes and good monsoons would have a sobering effect on prices. For the week ended May 3, the year-on-year Wholesale Price Index(WPI) based inflation rate touched 7.83 per cent--the highest since November 2004.

There are fears among experts that the government in its over enthusiasm to curb inflation, may take measures that will hurt growth. There is already evidence of this with the Index of Industrial Prdduction falling to a low of three per cent in March.

The hardening of interest rates and the rising value of the rupee have hit industrial growth, especially manufacturing growth, as well as exports.

There are also fears that the price rise may have a fallout on the assembly elections in some States due in November this year.

The Opposition has been capitalising on the situation and had blocked the functioning of Parliament for several days in the last Monsoon session and if the prices do not come down, it will further embarrass the government. The main forum for this will be the assembly elections.

The left parties, which are supporting the government from outside, too have been critical of the government's inability to control prices.

If the price situation continues to get worse--as was depicted in Dr Ahluwalia's projections-- till October- November, the issue will become a hot potato at the assembly elections.

Apart from following a tight money policy, the government has taken a series of fiscal and administrative measures to curb inflation. These include banning of edible oil exports, withdawing of DEPB benefits relating to cement exports, duty cut on palm oil imports, banning of non-basmati rice exports as well as pulses , withdrawing DEPB benefits on basmati rice, banning of cement exports, duty cut on steel, skimmed milk, and banning of futures trading in potatos, soya oil, chunna and rubber.

Industry has been crying howl over these measures, saying these will stem growth and ruin export markets.

It is in this context that both Dr Singh and Dr Ahluwalia-- the two high priests of reforms-- felt that stability of policy needs to be maintained at all cost.

UNI GS AT RN1744