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Kamal Narang

Tackling price rise: The Finance Secretary, Mr D. Subbarao, (right) along with the Chief Economic Advisor, Dr Arvind Virmani, addressing mediapersons in the Capital on Saturday. –

Our Bureau

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New Delhi, June 21 Setting aside its penchant for economic growth, the Finance Ministry on Saturday made it clear that “inflation management” has assumed “top priority” given that the economy was faced with double digit inflation.

It is also of the view that much of the response on inflation management must come from the demand side and expects the Reserve Bank of India (RBI) to take more monetary measures, which is considered to be the first line of defence under the demand side.

“There is a tradeoff between growth and inflation. We all know that. We have to manage that tradeoff. But when inflation is as high as 11 per cent, inflation management takes top priority. There is no painless adjustment. Inflation management might compromise growth prospects,” Dr D. Subbarao, Finance Secretary, told at a press conference at North Block.

On possibility of further duty cuts, he said the Centre has not “run out of fiscal options”, but noted that at this juncture, the better option would be to go for monetary measures.

He maintained that the fundamentals of the economy were strong and the surge in inflation would not adversely affect the corporate investments in the economy. “The debt equity ratio of corporate sector continues to be low. It is not that any increase in interest rate will have immediate impact on corporate investment prospects. We believe investment prospects continue to be promising”, Dr Subbarao said.

The Chief Economic Advisor, Dr Arvind Virmani, said the economic division in the Finance Ministry maintains the growth projection at “8.5 per cent plus or minus 0.5 per cent” for the current fiscal. He pointed out that the latest episode of inflation was coming out of global uncertainties.

On the outlook for inflation, Dr Subbarao said inflation and inflationary pressures would persist for some more months as a mathematical inevitability, essentially because of base effect. “For example, even if prices do not increase any further, there will be inflationary pressures for the next few months only because of the base effect”, he said.

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