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Economy
Need to curb inflation without hurting growth
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New Delhi
Feb. 27
Inflationary pressure is likely to continue during the current financial year and containing it, without hurting the economic growth momentum, is high on the Government's priority list, the Economic Survey 2006-07 said.
"The pressure on inflation may persist because of a mismatch in supply and demand for some primary articles and firm international prices... The fight against inflation has to be calibrated without compromising growth," the Survey for 2006-07 said.
The Survey said that higher demand arising from accelerated growth in GDP, besides credit growth, have also exerted pressure on demand side.
The annual WPI-based inflation rate eased to 6.63 per cent during the week ended February 10 from the previous week's annual rise of 6.73 per cent, but the inflation rate is still way higher than the RBI's inflation band of 5-5.5 per cent. Inflation has accelerated primarily on account of a rise in the price of products including fuel, food, fruit, vegetables, cereals and spices.
"Finding immediate answers to inflation induced by commodity-specific supply shortfall is difficult... Unless supply side constraints — especially in food items — are removed, inflationary pressure will not be tamed fully," it said.
For this, the Government has to take steps to increase yields and domestic output of farm products like pulses, edible oils, rice and wheat, the Survey noted. The RBI has raised its key overnight lending rate five times during the year and the Government has announced measures including a lowering the tax on diesel and gasoline, banning wheat exports and cutting import duties on alloy steel, cement, copper, aluminium and chemicals as part of its strategy to contain inflation. The import duty on palm and sunflower oils and corn was also cut and the export of milk powder banned until September 30 to boost domestic supplies.
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