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Govt talks tough to tame runaway inflation

Spiralling food and commodity prices push the inflation rate to a worrisome 7 per cent, Arun Kumar and Gaurav Choudhury.
Hindustan Times | By Arun Kumar and Gaurav Choudhury, New Delhi
UPDATED ON APR 05, 2008 03:33 AM IST

Spiralling food and commodity prices pushed the inflation rate to a worrisome 7 per cent and a concerned government, confronted with major supply constraints, threatened to come down heavily on hoarders.

The latest price data released on Friday showed that the Wholesale Price Index (WPI) reached its highest since December 2004.

The rate of inflation in the previous week was 6.68 per cent and 6.54 per cent in the corresponding week a year-ago.

Commerce and Industry Minister Kamal Nath warned that the government would come down heavily on those found to be involved in hoarding and profiteering.

“We will not hesitate to take the strictest measures, including using legal provisions, against hoarding and profiteering, whether in food, cement or steel,” Nath said in Singapore on Friday.

The Centre has already empowered state governments to impose stock limit orders on essential commodities to check hoarding.

Earlier this week, the government announced a slew of measures, including import duty cuts on edible oils and a ban on export of non-basmati rice.

Experts cautioned that the price situation was unlikely to ease in the near future as a shortage of food had pervaded the world economy.

Record prices of rice and sky-high oil have stirred up inflation worldwide, prompting many governments to impose price controls and curb exports of essential goods.

In India, during the week ended March 22, prices of fruits and vegetables, pulses, cereals, eggs, meat, fish and edible oils went up, while condiments and spices were cheaper. The mineral category index shot up by 38.2 per cent, primarily driven by a 46 per cent rise in the prices of iron ore.

“Inflation is in an accelerating mode and we are yet to see any signs of its softening. While the government has taken some measures, I would not be surprised if the Reserve Bank of India (RBI) increases interest rates further,” said Saumitra Chaudhuri, Economic Adviser to ICRA, a rating agency and consulting firm, and a member of the Prime Minister’s Economic Advisory Council.

The RBI will announce its slack-season monetary policy this month and many analysts expect the central bank to raise interest rates to tame inflation.

ICICI Bank Managing Director and Confederation of Indian Industry (CII) Vice-President K V Kamath felt India’s economy would continue to grow at a fast clip despite inflation. “The present inflationary spiral is a pure supply-side phenomenon and not due to overheating in theeconomy,” Kamath said.

India’s gross domestic product (GDP) is estimated to grow at a slower 8.7 per cent in 2007-08, after clocking 9.6 per cent in the previous year.

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