The Hindu Business Line : Inflation measures are not anti-growth: Montek

New Delhi, July 3 Defending the current inflation control measures of the Government as “not anti-growth”, the Planning Commission Deputy Chairman, Mr Montek Singh Ahulwalia, today said that they are setting the pre-conditions for sustainable medium term growth for the economy.

“When you get a big shock (inflation due to external developments), there is some re-adjustment that would lead to some slowing down. But, if you are growing at 8 per cent, when the US is growing at about 1-2 per cent, you can’t worry about slowdown. Eight per cent is not low rate. This is not any drastic slowdown”, Mr Ahluwalia told reporters on the sidelines of ICAI’s diamond jubilee celebrations here.

Cooling of economy

He said that some cooling of the economy was inevitable, in an expansionary cycle, when one gets big increases in international prices.

“Controlling inflation leads to decline in interest rates in medium term. Monetary policy affects short-term interest rates. If there is an expectation of inflation and you don’t tackle it, the expectation effect will lead to high interest rate anyway. You must, therefore, create confidence that inflation is going to be under control. Without that it is difficult to bring interest rate down,” he said.

He underscored the need to get back to the basic monetary health so that future growth could take place without inflation. “Otherwise you are risking more and more inflation and you will have worse contraction later on,” Mr Ahluwalia said.

Mr Ahluwalia said that he was hopeful that inflation would be brought down gradually. “When inflation goes up, one wants to bring it down as quickly as possible. But you have to recognise that all instruments available take time to have an impact. The Government has already taken action. I am hoping that in the next several months, we will bring inflation rate under control,” he said.

Fiscal deficit

On whether the fiscal deficit target for 2008-09 would be met, he highlighted that the Budget had not gone off-track and there was no budgeted expenditure that had increased and the revenue performance was good. “Yes, there are off-budget problems because we don’t know what is going to happen to oil prices. These are uncertainties,” he said.

At the same time, he noted that he would not worry too much if the Budget deficit target is exceeded a little bit, given the shocks being faced by the country. After growth rate of 8.7 per cent followed by 8 per cent (estimated for 2008-09), he Mr Ahluwalia said the country was in a good position to recover all the lost ground in the remaining three years of Five-Year Plan.

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