With the country's annual food inflation still hovering around 15.5 per cent, Finance Minister Pranab Mukherjee on Tuesday said high prices remained a concern, as there was a limit to which money supply could be curbed to rein in demand.
"High inflation has affected family budgets. Prices of food items like vegetables, rice, wheat and pulses remain a big concern," the finance minister told the annual Economic Editors' Conference in New Delhi.
"The government has taken measures both from supply and demand sides to control high inflation. On the supply side, the Reserve Bank has taken measures to curtail excess liquidity," he said.
Yet, touching on a classical economist's dilemma of the need to strike a balance between inflation and growth, Mukherjee said that while the central bank can only curb liquidity to an extent, the government had tried to improve food supply through zero-duty imports.
He was alluding to policy measures of governments and the central bank in which curbs on the money supply have the potential to rein in inflation, but when the curbs are in excess, they can retard growth, since the economy is deprived of money for development projects.
"We can't create liquidity crisis," Mukherjee said. "Sometimes you can't control the prices, but mitigate the adverse impact on affected people. We are providing food at subsidies prices. The Reserve Bank has taken suitable measures."
At the same time, the finance minister said, the overall annual inflation, as opposed to price rise in food prices, had come down to 8.6 per cent in September after remaining in double-digits till June 2010.
"I do feel the annualised inflation will come down to 6 percent," he said, adding: "On the whole, notwithstanding continued concerns on inflation, macroeconomic environment, both domestic and external, is far more comforting at present than last year."