High commodity prices pose major risk to growth, inflation: Chidambaram

Expressing concern over uncertainty in global economy, Finance Minister P. Chidambaram said high commodity prices, particularly energy prices, pose a major risk to growth and inflation.

At the meeting of International Monetary and Financial Committee (IMFC) here yesterday, he said capital flows to emerging economies remain volatile and global commodity prices have remained elevated.

“The sharp rise in global food prices is another major challenge that many emerging economies may have to contend with,” Chidambaram said, who is here to participate in the IMF-World Bank annual meet.

Talking about India, he said “global commodity prices, particularly energy prices, pose a major risk to growth and inflation’’.

Commodity prices are on the rise due to geo-political tensions and huge liquidity injected into the financial systems by the US, Europe and Japan to stimulate their economies.

Chidambaram said inflation in India has remained above the comfort zone of the Reserve Bank and to check the demand side pressure, the central bank has kept the key policy rate unchanged at 8 per cent since April.

“However, in order to ensure that credit flows to productive sectors of the economy, the RBI has been managing liquidity actively. In the near-term, inflation is expected to remain sticky,” he said.

India’s economic growth fell to a nine-year low of 6.5 per cent in 2011-12 and in the first quarter of the current fiscal, the GDP expansion stood at 5.5 per cent.

In a recent report, the International Monetary Fund (IMF) has projected India’s economic growth at 4.9 per cent in 2012.