Attributes rising inflation to the high fiscal deficit incurred
As retail inflation crossed the double-digit mark, Finance Minister P. Chidambaram, on Thursday, said the government was looking at various suggestions to cool prices but there were no easy answers to the problem.
“The RBI and the government are trying a number of measures to cool inflation... We are looking at various suggestions that we have got. I am open to suggestion but I am afraid that there is no easy answers to cool retail inflation,” he said while addressing investors here.
The CPI inflation, measured by movement in the retail prices of food items, soared to a seven-month high of 10.09 per cent in October. The wholesale price-based inflation, too, shot up to 8-month high of 7 per cent in the same month.
He attributed the rising inflation to the high fiscal deficit incurred by the government to neutralise the impact of global financial meltdown of 2008.
The Minister further said that although the government had offloaded five lakh tonnes of wheat to contain the price rise, it would not cool prices of fruit, vegetable, milk and eggs.
Mr. Chidambaram said his foremost priority would be to contain fiscal deficit and current account deficit (CAD).
The fiscal deficit in the current financial year, he added, would be brought down to 4.8 per cent of the GDP, from 4.9 per cent in 2012-13.
As regards the CAD, the Minister said he would endeavour to bring it down to below $56 billion, a figure which was given by RBI Governor Raghuram Rajan on Wednesday.
CAD soared to a record high of $88.2 billion or 4.8 per cent of the GDP in 2012-13.
The government had initially proposed to bring down CAD to $70 billion. Later, it improved the estimates in view of declining gold imports and rising exports.
“... the trough that we hit in the first quarter of 2013-14 is clearly a direct result of high fiscal deficit, a very high CAD, and inflation which is stubborn, high and unacceptable. We need to deal with them, we cannot wish them away. There are no easy answers,” Mr. Chidambaram said.
The problem of inflation remained, he said, adding that there were three numbers to look at, which were core inflation, WPI and retail inflation.
“The RBI has a mandate. The mandate is to control inflation without killing growth. Monetary policy does not have impact on food inflation, I am sure (RBI) Governor also knows that,” he said.
The Minister said WPI inflation between 6 and 7 per cent, was “high, worrisome but something that can be addressed.’’
“There are no easy answers to that (retail inflation). Demand obviously is very high. There is not enough production of fruit, vegetable milk or eggs.... inflation remains stubborn.”