Finance Minister P Chidambaram on Sunday warned of “strong measures” if some sectors behave “irresponsibly” on prices.
“We have taken fiscal measures ... We will not hesitate to take more fiscal measures, even if it means sacrificing some revenues that are badly needed for social sector expenditure,” the finance minister told PTI in an interview.
Chidambaram, who is here for an IMF-World Bank meeting, said the issue of inflation raised by the IMF as it pertained to India was indeed a serious concern.
Describing inflation as “the current biggest worry", he said: "... There could be unexpected political developments and there could be natural calamities. All other factors today, I think, are positive.”
Chidambaram said the Reserve Bank of India “will take appropriate monetary measures. The third leg of the triangle is the supply side. But supply side responses are not immediate. Supply side responses to a situation of high demand and shortages can only come in the medium term."
“A number of steps will be taken to enhance supply, especially supply of food items. If after all these some sectors behave irresponsibly, then the government would have to consider strong measures in order to moderate prices,” the finance minister warned.
“India's inflation is high today because of food, crude oil and commodity prices,” Chidambaram said at the end of his first day of formal spring meetings of the IMF and World Bank.
“We are a marginal importer of wheat, we are a large importer of edible oils and pulses and we are a very large importer of fertilizers, which are necessary to grow food. We are therefore vulnerable to high prices of food. If that is the situation regarding food, the situation is only worse regarding commodities and crude oil,” he maintained.
“Because our growth is high we demand and we consume large quantities of crude oil and commodities. In a sense, therefore, we are importing inflation,” Chidambaram said
Disagreeing with the notion that high inflation was one of the downsides of economic growth, he said: “You can have high growth with moderate inflation. But the current phase of inflation is triggered largely by external factors over which India has very little control.”
“That is why we are forced to take some rather extreme fiscal measures involving huge losses of revenue, as well as monetary measures that will have a negative impact on growth itself. In a situation like this we have to balance growth and price stability,” the minister said. He insisted if price stability means sacrificing a bit of growth “then I am afraid we will have to sacrifice a bit of growth.”
Chidambaram argued that India's growth story would continue to unfold because savings and investments were very high, but this would be dampened by of high inflation.
"High inflation has the effect of converting even those who believe in reforms into opponents of reforms. Therefore, it is necessary to tame inflation as early as possible," the minister said.
Chidambaram maintained that the issue of exchange rate of the rupee versus the dollar was not off the radar and argued that in the long term Indian exporters would have to learn to export under conditions of a stronger rupee.
"Last year the rupee appreciated very rapidly. This year it has been more or less stable. Simultaneously the Chinese Renminbi has appreciated, taking some pressure off Indian exporters," the finance minister said.
The government did not take a definite view on the rupee, Chidambaram said. "Our position is that we would like a competitive exchange rate for the rupee that will help both exporters and importers. In the long run, of course, I am clear in my mind that exporters will have to learn to export even under conditions where a stronger rupee prevails. That is the story of the Japanese exporter and the German exporter. They have learnt to be competitive even when their currencies appreciated."