NEW DELHI: India is confident that steps taken to reverse rising prices will cool inflation, but the world community has not done enough to address problems of costly food and fuel, Prime Minister Manmohan Singh said yesterday.
Widely watched annual wholesale price inflation has in recent weeks accelerated to above 7%, its highest levels in more than three years, due in large part to fast rising global prices of key commodities.
This has added to policy headaches for both the central bank and the government, which faces a string of state elections this year and federal polls scheduled for 2009.
Yesterday, the Reserve Bank of India again raised its cash reserve ratio to control inflation-stoking cash but kept official interest rates unchanged.
“The government is fully alive to the challenge and has taken several steps to reverse the recent spurt in prices. I am confident that we will be able to moderate the prices rise,” Singh told a gathering of top Indian businessmen.
“However, we cannot ignore the fact that there are external factors which are contributing to inflation over which we do not have much control.”
He said many developing countries were deeply concerned about rising global commodity prices, especially those of food and petroleum products.
“The world community has not done enough to address this challenge,” Singh said.
“The diversion of land from food crops to bio-fuels and increasing use of available food grains and vegetable oils for the production of bio-fuels have greatly contributed to the rising food prices.”
The prime minister’s remarks came against the backdrop of US Secretary of State Condoleezza Rice’s remark on Monday that an improvement in the diets of Indian and Chinese people was the main reason for the skyrocketing prices of grains worldwide.
“While bio-fuels continue to be an extremely important piece of the alternative energy picture, obviously, we want to make sure that it’s not having an adverse effect,” she told a conference in Washington.
Singh said he was deeply dismayed by the global response to soaring energy prices, as world oil demand had risen by just 1% annually over the past two years while crude oil prices had shot up by over 90% in dollar terms.
Singh said the steps taken by the government – largely export bans and duty cuts – to ease price pressures would show results in “the weeks and months to come” and the normal monsoon rains predicted by the weather department should help.
Singh said the broad macroeconomic fundamentals of the Indian economy were robust and the medium- and long-term outlook highly encouraging.
The Indian economy, Asia’s third-largest, is estimated to have grown by 8.7% in the fiscal year ended March, and policymakers expect it grow around 8.0-8.5% in 2008/09.
But Singh said while he was confident about the sustainability of India’s growth he was worried about the stability of the global financial system.
“The international community has unfortunately been slow to come to grips with the now visible structural weaknesses in the functioning of the international financial system,” he said. – Agencies |
