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Inflation control worries finance minister as poll year looms

business Updated: Dec 12, 2013 01:45 IST
HT Correspondent
HT Correspondent
Hindustan Times
P Chidambaram

Finance minister P Chidambaram said on Wednesday that fighting inflation and maintaining fiscal discipline were top priorities, and suggested that RBI's money-tightening measures were not doing enough to control prices and government policy to boost farm-to-retail linkages were critical.

Monetary policy is a "rather blunt instrument" to tame inflation, the minister told the Delhi Economics Conclave, where RBI governor Raghuram Rajan was also present.

"The answer to inflation is to increase supplies and to radically transform the manner in which commodities and food articles are stored, transported, distributed and sold in various markets, especially urban markets," Chidambaram said.

"There can be no compromise — and I speak for the Government when I say this — on the decision to walk on the path of fiscal prudence and contain the fiscal deficit, step by step, year by year, until we reach the goal of 3% of GDP in 2016-17," Chidambaram said.

The government's fiscal deficit already touched 84% of the full-year target by October-end, raising questions on whether it will be able to keep it under 4.8% of GDP in 2013-14.

Credit rating agencies such as Fitch Ratings have cautioned that Congress party's defeat in the in the recently-concluded Assembly elections, could upset expenditure cut-back plans.

India's wholesale inflation rose to 7% in October from a year ago, an eight-month high, as consumers continued to battle a sticky spell of high prices and deepening problems for a government trying to push growth in an election year. Retail prices, on the other hand, touched double-digits at 10.09% in October.

"It is common knowledge that the government of the day will pay a price for high inflation, especially if inflation persists over a long time," Chidambaram said, attributing the current spell of high prices to costlier food.

The RBI has raised interest rates several times this year to try to lower demand and cool prices. On Wednesday the central bank governor hinted that more measures could be coming in its policy review next week.

Rajan said the central bank could consider making future borrowings more expensive for wilful defaulters.

"For wilful defaulters or a new category that we call uncooperative defaulter, future borrowing will become more expensive. By uncooperative defaulter I mean those who don't work with their lenders to achieve equitable and efficient resolution of stressed assets," he said.

"Next week, we propose to put out a discussion paper... The key element (will be) to deal with distressed borrower...It (the paper) will focus on recognition, resolution and recovery (of assets)," Rajan said.