The Hindu Business Line : Govt plans fiscal measures to contain inflation

INFLATION WORRIES: The Finance Minister, Mr P. Chidambaram, flanked by Mr K. Ramakrishnan (left), CMD, Andhra Bank, and Mr V.P. Shetty, Chairman and Managing Director of IDBI Bank, at the Bankers Conference 2006 in Hyderabad on Friday. Also seen (partly) is Mr M.B.N. Rao, CMD, Canara Bank. - K. Ramesh Babu

Hyderabad , Nov. 3

Perceiving certain `worrying signals of inflationary expectations,' the Government is seriously contemplating to initiate stern `fiscal measures.' The Government was targeting to contain inflation at around 4 per cent.

Addressing a gathering of bankers, regulators and policy makers at `Bancon-2006,' the annual bankers' conclave, here on Friday, the Union Finance Minister, Mr P. Chidambaram, stressed on the need for a mix of monetary and fiscal steps to contain the inflationary expectations.

Fiscal Measures

The monetary steps were already taken by the RBI in the peak season credit policy. "We are ready and willing to take fiscal steps." However, he declined to specify the exact nature of fiscal measures. "I cannot share fiscal measures at a press conference," he said, responding to queries of journalists.

Earlier, speaking at the conclave, he was upbeat on the Indian economy and said that 8 per cent GDP growth rate achieved during the last three years would be sustained with manufacturing sector catching up with services sector in its contribution to economy.

Credit Growth

The Finance Minister has also expressed concern over `very high' credit off-take in segments such as housing loans, commercial real estate and credit cards.

"Though there is no conclusive evidence of overheating, there are some signals. The bankers need to be more cautious to ensure that asset bubble does not build up in these sectors." In this context, he advised the bankers to heed the words of caution and signals and accordingly moderate credit growth in high growth segments and rebalance their credit portfolios.

He asked them to ensure that some sectors that were denied credit and some sectors that did not receive adequate credit were brought back into their credit portfolio.

Referring to the forced imports of wheat last year, with concerns in managing supply side of foodgrains, Mr Chidambaram indicated the worrying signals in inflationary expectations.

However, he said the Government is confident of managing the supply side of foodgrains well this time and ease inflationary pressures.

The Finance Minister has also advised the bankers to shed their reluctance on lending to SMEs.

"They deserve to be encouraged more. Yes, some SMEs may fail and some may turn sick. But the externalities resulting out of SMEs far outweigh the risk of NPAs from SMEs," he said.