A combined Opposition has called for a nationwide strike on Monday, but fuel price increase to stay, says India finmin.
India’s finance minister said he would not back down on a recent increase in fuel prices, a day ahead of a nationwide protest strike called by the main opposition party.
High inflation, which will be exacerbated by the fuel price increase, prompted India’s central bank on Friday to raise interest rates by 25 basis points, nearly a month ahead of a scheduled policy review.
(There is) no question of a fuel price hike rollback, Finance Minister Pranab Mukherjee told reporters on Sunday on the sidelines of a conference in Kolkata.
India freed up state-subsidised petrol prices late last month and raised the prices of other fuels as pressure to trim a budget deficit outweighed concerns about the political impact.
The increase in fuel prices will add nearly one percentage point to wholesale price index (WPI) inflation, which hit 10.16 percent in May, the government has said. Mukherjee said he welcomed the Reserve Bank of India’s (RBI) move to raise rates.
So far as the interest rate hike is concerned, 25 basis points is appropriate and welcome. I do hope it will be subsumed in the new policy statement which will be made by RBI in the later part of the month on 27 July, he said.
The timing of the rate increase ahead of the scheduled quarterly review came as a surprise, and another increase of 25 basis points is widely expected on July 27.
While the Indian government is reluctant to put the brakes on growth, which is on track to reach 8.5 percent in the fiscal year ending in March, the RBI indicated in a statement accompanying its rate increase that it had held off from lifting rates sooner only because of tight liquidity in the financial system.
An RBI deputy governor, speaking to reporters at the same event on Sunday, said the central bank and the finance ministry did not always necessarily agree on the best course of action in the short term.
We can have different views. Monetary authority and the ministry can have different views. That does not mean that RBI will not act because (its) perspective is different. For RBI, inflation is everything, and for (the) ministry, growth is everything, said RBI deputy governor K.C. Chakrabarty.
But in the long term, both will converge, because inflation is the greatest enemy for growth. So even if we take anti-inflationary measures, that does not mean we are against growth, he said, adding that in the near term growth might suffer as a result of monetary policy tightening.
