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Inflation below 7 pc soon: Govt

Acting quickly, the government has banned export of some staples like rice and pulses and cut customs duties on other items to try to rein in inflation, HT reports.

business Updated: May 08, 2008 20:48 IST

The government sees light at the end of a worrying tunnel on inflation with prospects of the benchmark rate based on wholesale prices dipping by one percentage point from the current level of more than 7 per cent in a matter of six to eight weeks as duty cuts and money supply squeeze to control demand begin to take effect.

The government has also been on a drive towards a record food grains procurement for its own buffers in the face of an international crunch in food prices and will not hesitate to take more measures to control price rise, Minister of State for Industry Ashwani Kumar said on Thursday.

The Industry Ministry monitors and releases price data every week. Inflation is now at a three-and-a-half-year high of 7.57 per cent in data reported last week.

“I think the cumulative effect (of fiscal and monetary steps) will be in the range of about one percentage point. It could come down to 6.4 or 6.5 or 6.6 per cent in the coming eight weeks,” the minister told a news conference.

The government is also seeking to persuade cement makers to cut prices. The minister said the government was open to considering the cement industry’s proposal for tax cuts.

“The industry ministry has submitted a proposal to the Finance Ministry in this regard and a final decision would be taken by the Cabinet”, he said.

Steel makers on Wednesday assured government to cut prices for three months after meeting Prime Minister Manmohan Singh.

The wholesale price index (WPI)-based inflation rate has hovered above 7 per cent in the last few weeks. Acting quickly, the government has banned export of some staples like rice and pulses and cut customs duties on other items to try to rein in inflation.

Moving in tandem, the Reserve Bank of India (RBI) has raised the cash reserve ratio (CRR), the share of deposits that banks must park with the central bank, by a quarter point to 8.25 per cent. This is expected to take out about Rs. 9,500 crore out of the money market.

“Government is not helpless and has means to ensure prices are brought down. More measures — both administrative and fiscal — are in the offing to control inflation,” Kumar said, adding that prices of rice, wheat, pulses and edible oils have declined significantly in the last two months.

Between March 1 and May 6 this year, wheat prices have come down by 9.10 per cent, while those of rice, pulses and edible oils have fallen by 1.64 per cent, 7.69 per cent and 18.93 per cent respectively.

"Our endeavour is to maintain price stability consistent with growth. We need to grow at 8 per cent," Kumar said.

“We have talked to cement producers and they have assured us that very soon in the course of two or three days, after consulting among themselves, they would put forward their proposals on how best the cement prices can be brought down further,” Kumar said.

He said the government was engaging with industry and not controlling prices by orders.