India's top economic managers on Tuesday went into a huddle to devise a strategy to combat high prices that are threatening to create a major political crisis for the ruling UPA coalition. The 90-minute meeting chaired by Prime Minister Manmohan Singh, however, remained inconclusive.
With vegetable supply crunches mainly affecting urban centres, agriculture minister Sharad Pawar unveiled a new scheme to "quickly" build vegetable-only farm clusters around major cities and towns.
"Under the new scheme, the Centre will fund states to enable vegetable clusters within a 50-km radius of major cities that should start producing within a year," agriculture secretary PK Basu told HT.
There was immense concern at the meeting about the price situation in an "overheating economy". An economy is said to overheat when rapid growth pushes up demand, and thereby, inflation.
Since food inflation remains entrenched in a clutch of items such as vegetables, milk and eggs (and not in wheat, rice and lentils, whose prices are relatively stable), the government has decided to embark on "sectoral interventions" or commodity-wise measures. The ban on onion exports last month was one such step to control food prices that surged 18.3% in the week ended December 25, the highest rise since July 2010.
"There are supply constraints but the bigger issue is whether we are overheating," Planning Commission member Abhijit Sen said. "The government will have to take a considered view on this."
Three sets of key policy-influencing data will be released over the next three days —
factory output growth on Wednesday, food inflation on Thursday and consolidated monthly inflation on Friday.
The challenge before the government is to control prices without compromising economic growth that hit 8.9% in April-October 2010, and is poised to cross 9% for the full fiscal.