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Govt says oil price rise could boost inflation

The rise in global oil prices could boost India's inflation but the Govt and RBI to take monetary and fiscal steps to control it.

india Updated: Jan 23, 2006 14:01 IST

The rise in global oil prices could boost India's inflation but the government and the Reserve Bank of India will take monetary and fiscal steps to control it, the country's finance minister said on Sunday.

The minister's remarks came immediately after the ruling Congress party called on the government to cap taxes on oil products to prevent a hike in domestic petroleum prices.

"We have taken a number of steps to tame inflation. The government and the reserve bank will take necessary steps to keep inflation within reasonable limits," Palaniappan Chidambaram told a news conference.

"Oil prices do have an inflationary impact. I have no control over oil prices."

Oil prices are hovering around $70 a barrel, the highest since September, boosted by mounting tension over OPEC member Iran's nuclear ambitions.

Chidambaram, who is a member of the Congress party, said the developed nations were not doing enough to restrain oil producing countries from pushing up prices.

"Oil prices hurt developing countries. We are very unhappy the way oil prices are behaving. We wish they will moderate," he said while attending a three-day conference that aims to review the performance of the Congress party and government and to chart policy.

The Indian economy, Asia's third largest, is vulnerable to volatility in international oil prices as it imports 70 per cent of its annual crude oil requirements.

But Chidambaram said India would exceed an earlier estimate of 7 per cent growth for the fiscal year ending March 2006.


The Congress party's demand to cap taxes on oil products was contained in a draft resolution on economic affairs, due for adoption on Monday at the conference.

The party, which came to power in 2004 with the support of anti-reform Communists, reaffirmed that the government should not sell its stake in the eight biggest state-run blue chip companies, which include power, petroleum and heavy engineering firms.

"Disinvestment in other cases should be undertaken selectively, on a case-by-case basis so as to raise resources ... for social sector programmes," the resolution said.

"It should be ensured that at no circumstances the fund from the public sector should be used for meeting the revenue expenditure," it said.

The cash-strapped government hopes to raise up to Rs 50 billion ($1.1 billion) from asset sales to help fund a $6 billion spending plan to improve the lives of about 260 million poor, but its plans have been stymied for months, largely due to opposition by leftist parties.

Chidambaram said the government was discussing asset sales with the Communists and that he was confident of some sales in the next fiscal year, which begins in April.

"There are differences and that is why they (the Communists) belong to one party and we to another. There are differences but we have a way to reconcile these differences," he said.

First Published: Jan 23, 2006 12:30 IST