'Govt can sacrifice growth to manage inflation'

A WARNING: JNU VC and well-known economist BB Bhattacharya says inflationary trends could continue for the next three-four months.

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New Delhi: Union Finance Minister P Chidambaram has said that the government is willing to sacrifice growth for containing inflation.

He said the Reserve Bank of India (RBI) will take monetary steps to control inflation and the government will also take measure to increase supply of commodities to bring down prices.

RBI Deputy Governor Rakesh Mohan said spikes and seasonal falls in inflation would continue, as it rises globally. But the RBI will aim to contain the figure at five per cent, he said.

The government has already scarped import duty on cement and steel products to contain inflation.

Apart from this government has withdrawn the tax refund scheme for Duty Entitlement Pass Book (DEPB) Scheme for cement and metal exports. However, Commerce Secretary GK Pillai said that the status quo would stay until the Cabinet takes a final decision.

"The steel producers themselves had indicated to the Steel Secretary that they are willing to forgo the DEPB Scheme benefits as one of the measures to slow down exports and lower the prices of steel products for the domestic industry. So the Steel Secretary had made the recommendations to us and on that basis we have notified the withdrawal of DEPB Scheme benefits," Pillai said.

Meanwhile, Jawahar Lal Nehru University (JNU) Vice-Chancellor and well-known economist BB Bhattacharya cautioned that the inflationary trends could continue for the next three-four months.

"Well if the inflations is entirely due to the iron and steel prices than the current hike could be transitory. To me, however, it doesn't look like that. The oil prices are bound to stay high and the rising commodity prices together with the rising prices of cereals in India makes it look like that the inflation is going to be on an upswing at least until the time the monsoon situation becomes very clear," Bhattacharya said.

The JNU Vice-Chancellor also said that the capacity of the government to stand up to the global price is limited.

"The markets develop on expectations. The capacity of the government to stand up to the global price would be limited. It is almost reaching saturation. The government has done substantially to neutralise the global price rise as far as oil is concerned. But other things that concern more to the government are now the rising prices of food grains. So as far as poor people are concerned, it is the rising prices of food grains that are far more important than lets say steel or cement or oil. That incidentally is rising at the rate of nine 10 per cent for the last couple of months," he replied when asked that inflation rates in India don't usually incorporate global oil prices and Indian customers are insulated from global oil prices.

He also ruled that large-scale hoarding of goods was responsible for high inflation.

"Well, hoarding has not been that important. What is important is that because of the high growth the purchasing power of the economy has risen but the food supply and agriculture production has not been able to keep pace and government did not import adequate quantum in the last one-two years. So the imbalance in the demand and supply of food is one reason why the food prices are rising," he added.

The RBI will definitely tighten the money probably by raising the interest rates. Though I know that in many quarters there has been a demand to reduce the interest rates given the circumstances, I think India will be acting here contra-globally. While globally the interest rates have come down, India will be going the opposite direction," he concluded.