Interest rate hike to choke investment but not prices: FinMin

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New Delhi, May 28 (UNI) Stating that India's high inflation rate was linked to phenomenal increase in global energy, food and commodity prices, Dr Subhashis Gangopadhyay Advisor to the Finance Minister, today expressed himself against raising interest rates to check prices as it would choke investment, but have little bearing on prices.

''Raising interest rates is probably not the best way to curb inflation. Anything that affects investments is not a good idea,'' Dr Gangopadhyay told a meeting organsied by the PHD Chambers of Commerce.

He said the souring prices of fuel, primary articles and food had pushed the widely watched wholesale price inflation rate higher.

Instead, the government needs to take more pro-active steps to bring down prices, like strengthening the Public Distribution System.

He said it was better to learn to cope with inflation, rather than pressing the panic button and take knee jerk measures.

''The rising crude prices are what we call 'imported inflation', while the world is also faced with the problem of rising commodity prices,'' he said.

He said the rising food prices was a domestic issue that can be corrected through production and improving distribution system.

Dr Gangopadhyay said there was no paradox in the economic literature about inflation and growth. ''Sometimes, the inflation is demand-driven. For food sector that would ensure a fair price for the farmers,'' he said.

In the case of primary goods, which are mostly consumed by the industry, any increase in prices would have a cascading effect on the economy, he added.

Dr Gangopadhyay said there was no way out of the inflationary pressure in the short-term but ''to ease the pain through the correction in the distribution system''.

World Bank economist Dipak Dasgupta, who was also present on the occasion, was of the view that inflation was a reaction to the rising prices of commodities, food, primary articles as well as crude. He added that apart from the fundamental role of price rise, dollar depriciation and the ''flight of money from stocks globally after confidence shocks'' were responsible.


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