The Hindu Business Line : `Sensible supply growth strategy can help check prices'

New Delhi March 21 The Planning Commission Deputy Chairman, Mr Montek Singh Ahluwalia, on Wednesday said that "a sensibly pursued growth strategy that focuses on underlying supply capability" in the system would "actually help to keep prices in check", since the concern about overheating is "simply a reflection of the concern about prices".

Talking to Business Line here on his comment on Tuesday that there is overheating in the economy, Mr Ahluwalia said that the Government has been indicating that it is "concerned about the rise in inflation and is determined to bring it down".

He said that a number of steps have been taken on the monetary side, on customs duties and on supply side management of individual commodities all of which in the next month or two would slow down the growth of prices.

"When we talk about overheating, all we are saying is that right now it looks as if there is an excess pressure on demand in the system," he said, adding that "our objective in the medium-term should be to make sure that there is a growth of supply and that is why in the Eleventh Plan (2007-12), we are targeting a growth rate of economy of 9 per cent, a growth rate of agriculture at 4 per cent a year".

Mr Ahluwalia said that this would be "a substantial improvement over the average growth rate in recent times". He said the fact that the economy grew at 9 per cent in the last two years is not an indication of the underlying supply growth potential in the system. He added that the Planning Commission is not responsible for short-term demand management even as they are important and they are being done.

"Our role and objective should be to give the maximum support for the expansion of supply side and that is what the Eleventh Plan is going to do. Therefore, I feel that the medium-term objective of 9 per cent growth will contribute to keeping inflationary pressure under check. I think there is too much focus as if the growth objective leads to inflation. This is not correct in my view," Mr Ahluwalia clarified.

Over and above the pursuit of a sensible growth strategy, he said that in the short-run, wherever there is pressure, "You have to do some demand management and the Reserve Bank of India and the Finance Ministry are doing that."