The Hindu Business Line : PM firm on reining in inflation

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New Delhi Feb. 3 Rising inflation has started to worry the Government in a big way, with the Prime Minister, Dr Manmohan Singh, holding interactions with the members of his Economic Advisory Council (EAC) on this issue.

Chairing a meeting of the council here on Saturday, Dr Singh said that the Government was committed to reducing the inflation rate through appropriate policy measures. This remark assumes significance as high inflation continues to be a source of concern for the common man and that large States such as Uttar Pradesh and Punjab are slated to go for polls this year.

The annual wholesale price index based inflation increased by 6.11 per cent for the week ended January 20, higher than the previous week's level of 5.95 per cent. This rate was much higher than the outer limit of 5.5 per cent projected by the Reserve Bank of India for fiscal 2006-07.

The EAC Chairman, Dr C. Rangarajan, who made a presentation on the state of the economy at today's meeting, identified inflation as a key macro-economic challenge in the short-term. He, however, said that steps already taken should be able to dampen inflationary expectations.

"While global factors and rising demand had contributed to inflation in some sectors, supply side constraints had contributed to a larger extent," he said.

Dr Rangarajan said that easing of supply constraint through appropriate policy interventions in the real economy, lower tariffs, higher agricultural and industrial productivity would ease the price pressure.

Presenting an upbeat assessment on growth prospects for the economy, Dr Rangarajan said that the overall economic growth would be close to 9 per cent this fiscal.

He highlighted that growth was being driven by an increase in consumption and also an increase in investment.

Dr Rangarajan expressed confidence that Government would be able to adhere to its fiscal targets for the current year.

The EAC reported that the per-capita income growth, for the first time in 15 years, would be more than 7 per cent in 2006 and in 2007. It also reported a sharp increase in the savings rate to 35 per cent of national income on account of improvement in both private sector and government sector savings rate.

The Union Finance Minister, Mr P. Chidambaram, attended the meeting along with senior economic editors and analysts.

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