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'Strengthen public distribution system'

business Updated: Aug 15, 2008 21:44 IST
Gaurav Choudhury

Prime Minister Manmohan Singh on Friday blamed external factors for the surge in prices and asked state governments to ensure supplies of essential commodities at reasonable prices through its agencies. “We are taking determined measures to bring prices under reasonable control,” Singh said during his Independence Day speech. “I have urged all chief ministers to improve and strengthen the PDS (public distribution system) to ensure availability of essential commodities to the common man at reasonable prices.”

India’s annual inflation has reached a worrisome 12.44 per cent mark on the back of rising global commodity and crude oil prices, although the latter has shown signs of cooling off in recent days.

“I know how much each one of you is concerned about the recent rise in prices. The inflation we have seen this year is basically due to external factors,” Singh said.

Macro-economic managers and monetary authorities are grappling with policy dilemmas as they struggle to contain prices and maintain high growth in national income in an election year.

The Reserve Bank of India (RBI) has launched an all-round monetary attack on inflation by raising key interest and reserve rates to reduce liquidity and aggregate demand. “The RBI is moderating the growth of money supply in the country so that inflation can be controlled,” Singh said. “However, while making these efforts we should avoid doing anything which hurts our growth.”

On Thursday, the government handed out a Rs 29,000-crore bonanza in pay arrears to its nearly five million employees and analysts felt it could add to difficulties in battling inflation.

India’s gross domestic product has grown at an average of close to 9 per cent in the last four years, but most think-tanks including the Prime Minister’s Economic Advisory Council expect slower growth in 2008-09.

It’s not India alone, where authorities are battling to keep growth on track while reining in price. “All over the world and in global markets the price of food, fuel and other commodities has been rising,” Singh said. “In many developing countries the rate of inflation is double than in India.”

Analysts expected the central bank to maintain its hawkish stance and did not rule out a further hike in interest rates.

“If the inflation level in the economy, coupled with credit growth and money supply growth, does not moderate as per expectation, we are bound to seen further tightening of rates,” said Namrata Padhye, an analyst with IDBI Gilts.