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Inflation needs to be reined in

The Finance Minister says high oil, commodity and food prices were a concern for India and it was necessary to ensure that inflation remained under control, reports Gaurav Choudhury.

business Updated: Nov 23, 2007 22:15 IST
Gaurav Choudhury

Finance Minister P Chidambaram said on Friday that high oil, commodity and food prices were a concern for India and it was necessary to ensure that inflation remained under control.

"Universally there is a concern for inflation, which is mainly driven by high oil, commodity and food prices," Chidambaram said while addressing a business delegation from Iceland at a Confederation of Indian Industry (CII) function in New Delhi.

Chidambaram said that the rise in food prices could also be attributed to the higher use of corn in bio-fuel production.

"It is important to factor in price increase and adjust our policies so that inflation does not get out of hand," he said.

He said that India cannot afford shocks and therefore was "cautious in opening up the capital and financial markets".

"We cannot afford major turbulences in our markets…But we have set the course to open up our markets," he said adding that India has largely remained insulated from the sub-prime mortgage crisis that hit the markets in the US recently.

He also identified infrastructure as topmost priority in the coming years to sustain the high growth rates.

"Our infrastructure is good enough to support a growth rate of 5-6 per cent, but not adequate to support 8-9 per cent growth," he said.

India would require an estimated $475 billion in the infrastructure sector in the next five years. While most of the funds would be raised domestically, there would still be a need for about $120 billion that have to come from foreign investors.

Meanwhile, India also signed a Double Taxation Avoidance Agreement (DTAA) with Iceland, which also aims to promote economic cooperation between the two countries.

Chidambaram said that the agreement would result in high degree of comfort level of investors of both the countries.

The agreement provides that capital gains from alienation of shares of a company shall be taxable in the country where the company is a resident. It would further stimulate the flow of capital, technology and personnel between the two countries and will contribute to the tax stability and facilitate mutual cooperation, a finance ministry statement said.