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Govt juggling inflation, growth as prices spiral

business Updated: Apr 01, 2008 00:20 IST
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The government and macro-economic managers are grappling with policy dilemma as they struggle to contain prices and maintain high growth in national incomes amidst hardening of global commodity prices loom large.

Wholesale price index (WPI)-based inflation, that has reached 6.68 per cent in the last reported week, has been largely on account of primary articles (food product) and manufactured products. The full impact of surge in global crude oil prices has not been felt fully as the government has ensured that major prices are absorbed through oil bonds and upstream oil companies.

The wholesale price index for 'All Commodities' for the week ended on March 15, rose by 0.8 per cent to 223.6 (provisional) from 221.8 (provisional) for the previous week.

The index for 'Primary Articles' rose by 0.3 per cent to 230.5 (provisional) from 229.8 (provisional) for the previous week. The index for 'Food Articles' group rose by 0.2 per cent to 225.9 (provisional) from 225.4 (provisional) for the previous week due to higher prices of fruits and vegetables, masur and barley (one per cent each). However, the prices of bajra and urad (one per cent each) declined.

The index for 'Non-Food Articles' group rose by 0.6 per cent to 226.3 (provisional) from 224.9 (Provisional) for the previous week due to higher prices of raw rubber and rape and mustard seed (four per cent each), linseed and raw cotton (three per cent each) and copra, cotton seed and castor seed (two per cent each).

Independent analysts and think-tanks have cautioned that prices remained a down-side risk.

Economists expected the government to announce fiscal and trade measures to tame inflation in the short-term, but did not anticipate a slackening of the tight monetary stance of the Reserve Bank of India (RBI).

“The government may announce duty cuts and trade liberalisation measures such easing of import controls, but the impact of these could be limited in wake of high global commodity prices,” said DK Joshi, principal economist of Crisil.

“There are also concerns over sustaining the high level of growth and as well as creating inflationary instabilities,” the UN-Escap said in a recent survey.

Under Secretary General of the UN and Executive Secretary of the Escap Noeleen Heyzer said that rising food prices would be a major challenge in 2008 and pressure on inflation from rising food prices will continue during the year.

“India could achieve and sustain a 10 per cent growth rate by further improving the country's business environment, by developing its physical infrastructure and human capital,” Heyzer said.