New Delhi, June 02: Inflation in India remains a problem and will require firm action, Prime Minister Manmohan Singh said on Tuesday, adding that the country will keep pushing for higher growth.
High inflation has put political pressure on Singh’s government, threatening to undermine its support among millions of poor who helped the coalition return to power for a second straight term a year ago.
Wholesale prices, the Reserve Bank of India’s (RBI) most closely watched gauge of inflation, eased slightly in April to 9.6 percent, but are not far from 10.1 percent seen in February, which was the highest since October 2008.
The RBI, which has described the inflationary situation as “worrisome”, said on Tuesday inflation remained higher than its comfort level, signalling that the bank could raise interest rates further.
“One of the major problems that we face at present is the pressure on prices. This is to a large extent the aftermath of the drought, but it needs firm action,” Singh said.
“We will continue to monitor the situation very carefully, and take whatever corrective steps are necessary to rein in inflation,” Singh said in a speech marking the completion of the first year of his government’s second straight term.
The central bank has lifted rates twice, by a total of 50 basis points, since mid-March to tame inflation and is expected to deliver another rate hike of 25 basis points when it reviews its policy on July 27.
Singh hoped that the moderation in prices seen in recent weeks would continue.
Indian policymakers have been trying to push growth but the euro zone debt crisis has posed a new challenge for the central bank which has started a gradual exit from loose monetary policy.
STRONG GROWTH
The government hopes to get some relief on inflation from the timely arrival of monsoon rains, which hit the country’s southern coast on Monday.
The monsoon rains are vital for farm output in India and policymakers will keep watch on how the rainy season pans out after last summer’s drought sent food prices sharply higher.
The government expects the economy to grow at 8.5 percent in 2010/11 (April-March) partly on hopes of a normal monsoon. The economy grew 7.4 percent last year.
“We must work to ensure that the economy grows so that our resources expand, enabling us to spend,” Singh said.
High growth will also allow Singh’s government to cut its fiscal deficit which is seen at 5.5 percent of GDP this fiscal year.
In a bid to trim the deficit, the government has partially rolled back some of the fiscal stimulus that it had provided in the aftermath of the global financial downturn.
“It (fiscal stimuli) has worked well, but now, we must return to the path of fiscal prudence leading to a calibrated reduction in our fiscal deficit,” Singh said.
—–Agencies