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Govt to take steps to tame inflation: Pranab

Last Updated: Tuesday, December 15, 2009 - 21:48

New Delhi: The government will take steps to tame rising prices and enable the economy to recover faster, the finance minister said on Tuesday, as concerns about inflationary pressures spilling over to the broader economy mount.
Pranab Mukherjee also said the government intends to push tax reforms and cut its already-bloated fiscal deficit to 3 percent of gross domestic product after 2001/12 fiscal year, from 6.8 percent estimated for the current financial year ending March 2010.

Inflation and high fiscal deficit are major risks to India`s ambitious plan to ratchet up economic growth back to 9 percent level seen between 2005/06 and 2007/08.

"Prices are a major area of concern and we shall have to address it," Mukherjee said in parliament.

"Whatever steps are needed, we will take those steps," he said, but did not elaborate.

Higher prices paid by government agencies to buy grains from farmers and supply shortage following the worst dry spell in nearly four decades and flooding in parts of the country have fueled food inflation.

Latest government data shows food inflation at 16.7 percent in November, which have pushed the headline inflation to 4.78 percent.

Return to fiscal prudence

Analysts say inflationary pressures and faster economic recovery could prompt the central bank to start raising cash reserve ratio of banks and interest rates from next year.

The central bank has cut its policy lending rate by 425 basis points between October 2008 and April 2009, slashed CRR and pumped in liquidity in financial markets to revive the economy hit hard by the global slowdown.

The government offered fiscal stimulus in the form of tax cuts and higher spending, which widened the fiscal deficit that has to be funded by a record borrowing of 4.51 trillion rupees ($96.6 billion) in 2009/10.

Mukherjee said the deficit was "unsustainable", and the government would reduce it to 5.5 percent in fiscal year 2010/11 and to 4 percent in 2011/12. "And thereafter, we shall have to come back to 3 percent."


First Published: Tuesday, December 15, 2009 - 21:48
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