A cautious pat on inflation front

Updated: Feb 29 2008, 05:48am hrs
Keeping prices under control will be one of the key challenges for the government, even though inflation rate is expected to moderate this fiscal, the Economy Survey for 2007-08 has said. Inflation will remain lower at 4.4% during the current fiscal as compared to 5.4% in the previous year due to monetary and fiscal policy measures of the past last 18 months, the Survey said.

It projected moderation in inflation despite the hike in petrol and diesel prices but cautioned against pressures from rising foreign funds and increasing global commodity price movement.

Given the high level of food, oil and other commodity prices in international markets, risks to inflation remain. Thus keeping inflation under control in an uncertain global environment will be one of the major challenges in 2008-09, finance minister P Chidambaram told reporters after tabling the Survey.

Analysts said the Surveys acknowledgement that 9% and above growth was going to be tough without reforms highlighted the challenge faced by Chidambaram, who has to balance growth with price pressures ahead of general elections due next year.

This underscores the point that in the current environment any growth faster than 9% could turn out to be inflationary, said A Prasanna, economist at ICICI Securities. However, the finance minister said he was optimistic about growth and containing inflation in the coming year. It will be my priority to provide a conducive investment climate and manage the macro economy to facilitate non-inflationary growth.

The Survey said the reduction in tariffs on non-agricultural products has played an important role in bringing inflation in line with the global rate.

Tight monetary policy of the Reserve Bank has also kept prices under control, it added. The Survey said removing constraints on farm modernisation and urban land supply would lower inflation while further development of the debt and currency markets would enhance the countrys investment climate.