The Hindu Business Line : Keeping inflation under check main task: Chidambaram

I rise to present the Budget for 2008-09. This House and the United Progressive Alliance Government have bestowed upon me the honour of presenting all five Budgets on behalf of a Government - a rare honour that I have the privilege to share with only one of my distinguished predecessors, Dr Manmohan Singh.

The India growth story, so far, has been an absorbing and inspiring tale. Beginning January 1, 2005, the economy has recorded a growth rate of over 8 per cent in 12 successive quarters up to December 31, 2007.

In the first three years of the UPA Government, the Gross Domestic Product (GDP) increased by 7.5 per cent, 9.4 per cent and 9.6 per cent, resulting in an unprecedented average growth rate of 8.8 per cent. In the current year too, according to the Advance Estimates by the Central Statistical Organisation (CSO), the growth rate will be 8.7 per cent - although I am confident that we will maintain the average of 8.8 per cent. The drivers of growth continue to be “services” and “manufacturing”, which are estimated to grow at 10.7 per cent and 9.4 per cent, respectively.

Nevertheless, 2007-08 has been the most challenging of the last four years. At the beginning of the year, the outlook for the global economy was benign.

Our economy, thanks to our own policies as well as globalisation, was poised to record another year of high growth: in fact, the first half of 2007-08 returned a growth of 9.1 per cent. However, since August 2007, the financial markets in the developed countries have witnessed considerable turbulence that has not yet abated. The consequences for developing countries are also not yet clear.

Fine start

Moreover, agriculture has struck a disappointing note. Despite a fine start in the first half of 2007-08, the growth rate for the whole year in agriculture is estimated at only 2.6 per cent. There are other downside risks too. World prices of crude oil, commodities and food grains have risen sharply in the period April 2007 to January 2008.

The position of crude oil is well known to this House. Among commodities, the prices of iron ore, copper, lead, tin, urea etc are elevated. The prices of wheat and rice have increased in the world market by 88 per cent and 15 per cent, respectively. All these trends are inflationary, and there is pressure on domestic prices, especially on the prices of food articles.

Consequently, the management of the supply side of food articles will be the most crucial task in the ensuing year.

Capital inflows

We have also witnessed capital inflows that are far in excess of the current account deficit. This poses a challenge to monetary management.

The solution lies in increasing the absorptive capacity of the economy in the medium term. In the short term, it is our responsibility to manage the flows more actively. Government will, in consultation with the RBI, continue to monitor the situation closely and take such temporary measures as may be necessary to moderate the capital flows consistent with the objective of monetary and financial stability.

Keeping inflation under check is one of the cornerstones of our policy. However, since the downside risks have increased worldwide, we must be vigilant and prepared to make swift adjustments in our policies to achieve the goal of growth with price stability.

Let me first deal with agriculture, briefly for the present, and at some length later.

The Ministry of Agriculture has estimated that the total output of foodgrains in 2007-08 will be 219.32 million tonnes and that will be an all time record. In particular, production of rice is estimated at 94.08 million tonnes; maize at 16.78 million tonnes; soyabean at 9.45 million tonnes; and cotton at 23.38 million bales (of 170 kg each) - and each of these will be an all time record. Government is conscious that while a lot has been done, a lot more needs to be done.

Since the last Budget, Government has formulated and announced the National Policy for Farmers.

Besides, Government has launched the Rashtriya Krishi Vikas Yojana with an outlay of Rs 25,000 crore and the National Food Security Mission with an outlay of Rs 4,882 crore. Both schemes will be implemented during the Eleventh Five-Year Plan period. We are determined to become self-sufficient in food grains. Presently, I shall place before this House a number of new initiatives in the agriculture sector.

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