Inflation rate becomes critical to manage: FM

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Mumbai, Mar 29: Concerned over the inflation rate crossing the ''danger mark'' of over 6.5 per cent on Friday, Finance Minister P Chidambaram stressed the need to close the demand-supply gap in essential commodities, including cereals and crude. Delivering the valedictory address at the cenetnary year celebrations of the Indian Merchants' Chamber (IMC) here yesterday, Mr Chidambaram said there was a greater need to take cognisance of the rising inflation.

''We have to note every major to moderate inflation, including fiscal and monetary, and close the demand-supply gap by increasing the production of the items we are dependent on as import and their prices are rising,'' he said. Mr Chidanbaram pointed out that in the recent past, commodities, crude oil and food prices have sharply risen. ''If we are importing these item, we are actually importing inflation,'' he observed, adding ''We cannot be self-sufficient in all of them, but we have to be self-sufficient at least in rice, wheat, pulses, edible oil and sugar.'' The rise in crude and food prices and inflationary expectations had caused the rise in inflation beyond expectations, Mr Chidambaram said.

''We buy little more on the expectation of future prices, which further leads to a rise in the prices,'' Mr Chidambaram explained. ''For many of the items, we are dependent on imports. And, when we import, we are importing inflation,'' the Finance Minister observed. He lamented that the people who are hoarding essential commodities on the expectation of future price rise, are feeding the inflation. He said, ''Inflation rate has raised our concern. We had successfuly managed a balance between growth and inflation so far. But, now, it has become critical.'

Mr Chidambaram said the interest rates, though some call it a blunt instrument, are the most effective in containing inflation. Reserve Bank of India raises interest rates, increases the CRR or raises the repo rate, through policy prospects but it contains inflation and perhaps dampens growth, he said. Balance in inflation and growth is required, Mr Chidambaram said, adding, ''At the time when growth and inflation was not balanced, we brought the inflation to eight per cent and growth to four per cent. We have managed moderate inflation and high growth so far and now to moderate the inflation, we need to sacrifice a bit of growth.'' This inflation was not due to any policy distortion, as well as any policy mistake, it was due to increase in demand of global commodities, food and crude oil, Mr Chidambaram stressed.

''In India, we are growing, we are consuming and therefore we need to contain inflation, but we do take every major possible step to pull inflation down,'' Mr Chidambaram said, adding, ''I do take fiscal steps, RBI will take monetary steps. But to catch up the supply we have to grow more wheat, more rice and more pulses to contain inflation.''


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