Hike production to tackle inflation: PM

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New Delhi, Sep 5 : The Indian economy needs to step up productivity to tackle inflation, which has emerged as a major concern for the government policy, and to ensure that the growth momentum is least impacted due to anti-inflationary measures, Prime Minister Manmohan Singh said in Salem , Tamil Nadu, on Friday.

Inflation has touched a 13-year high of 12.34%, forcing the government to raise interest rates, which has started eating into the industrial sector growth by raising borrowings costs for companies and consumers. The industrial growth has slowed to 5.4% in June 2008 from 8.9% in the same month a year ago.

The government also expects the gross domestic product growth to moderate close to 8% in 2008-09, down from the over 9% growth seen in the last four years. The Prime Minister’s Economic Advisory Council has pegged the growth at 7.7% for this fiscal, while the Reserve Bank of India has lowered its earlier projection of 8.5% GDP growth to 8%. Increase in productivity would help augment the aggregate supply situation by raising output, which in turn would keep inflation under check without hurting growth.

“In the 11th Five Year Plan Period we expect the economy to grow at around 9% per year. To ensure that this growth process is not inflationary, we must step up productivity and increase output,” Singh said after laying the foundation stone for expansion and modernisation of Salem steel plant of Steel Authority of India Ltd.

Taking an example of the steel sector, Singh said that despite an individual’s consumption of steel being very low in India , producers have substantial pricing power that would remain intact. He said it was “all the more imperative” to increase supply of steel in order to meet rising demand and keep steel prices under control. Steel has a weightage of 4.5% in the wholesale price index, which is used to calculate inflation “Our per capita consumption of steel is still very low in comparison to other industrial and industrialising countries. Yet, we are today in a seller’s market and will continue to be so,” Singh said.