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Updated: July 24, 2010 23:57 IST

Inflation expected to be down to 6% by December: PM

Special Correspondent
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Prime Minister Manmohan Singh with Finance Minister Pranab Mukherjee at the meeting of the 55th National Development Council in New Delhi on Saturday. Photo: Kamal Narang
Prime Minister Manmohan Singh with Finance Minister Pranab Mukherjee at the meeting of the 55th National Development Council in New Delhi on Saturday. Photo: Kamal Narang

Banking on the expectation of a normal monsoon, Prime Minister Manmohan Singh on Saturday maintained that food inflation would soften in the second half of the year and bring down the overall inflation level to around 6 per cent by December. He pointed out that States were not doing enough on the farm front to help hold prices.

Inaugurating a meeting of the National Development Council (NDC) — the nation's top policy making body comprising Chief Ministers and the full Planning Commission — Dr. Singh said: “With a normal monsoon, which is the expectation at present, the rate of inflation in food prices will abate in the second half of the year. We expect to see the rate of inflation in wholesale prices come down to around 6 per cent by December.”

With the NDC meeting being held just ahead of the monsoon session of Parliament beginning on July 26 in which price rise is expected to be a topic of heated debate, Dr. Singh pointed to the plan panel's assessment that the States were not according the priority agriculture deserved, especially when the price spiral had been mainly owing to food inflation.

Stressing that there were visible weaknesses in farm extension services, research systems and in the working of State agricultural universities, Dr. Singh said: “This must be corrected if we want to achieve a broad-based improvement in living standards in rural areas… Better agricultural performance, especially performance in food production, is crucial for food security and would help in tackling the problem of inflation as well. The present high rate of [overall] inflation is mainly due to food price inflation.”

Turning to other aspects of the economy at the NDC meeting which was convened to approve the Mid-Term Appraisal (MTA) of the Eleventh Plan, the Prime Minister sought the support of all States for rolling out the Goods and Services Tax (GST).

“I would urge Chief Ministers to give full support to the effort to implement GST from April 1, 2011,” he said while noting that reform in the tax structure and tax administration was “another important step” in resource mobilisation, and the implementation of the combined indirect tax regime was particularly important in this context.

Dr. Singh said that though the economic growth during the Eleventh Plan (2007-12) had been scaled down from 9 per cent to an annual average of 8.1 per cent owing to the global financial crisis, it would still be the highest achieved during any Plan period. He, however, regretted that though the high growth achieved thus far was aimed at inclusivity, some of the various development schemes were not working well in backward regions, especially the areas affected by Left wing extremism. “We must make a concerted effort to bridge the development deficit in these backward areas and reduce whatever sense of alienation that may exist among the adivasis living in these areas,” he said.

As for the urgent need for closing the gap in the country's physical infrastructure, which was currently “not good enough to achieve 9-10 per cent growth over a sustained basis,” the Prime Minister pitched for improving the terms and conditions of public-private partnership (PPP) projects for expediting development as the “strategy has worked reasonably well.” “We need to do much more in future. We also need to improve the terms and conditions on which PPP projects are awarded to ensure that the process is transparent, bidding is competitive and public interest is adequately safeguarded,” he said.

On the power sector, Dr. Singh said the high level of losses on account of low tariffs for some consumer categories coupled with ATC (aggregate technical and commercial losses) were not sustainable and “unless corrected, would render the entire sector unviable, as investment in generation and transmission depends upon the ability of the distributing companies to pay.”

He also pointed to the need for reducing the government's subsidy bill and curbing transmission and distribution losses estimated at Rs. 40,000 crore in 2009-10. Noting that there was a need to reduce public sector losses and scale down untargeted subsidies, he said the Unique Identification Number scheme and other information technology techniques should be used to “target subsidies effectively to those who really need them.”

In this regard, Dr. Singh asked the Chief Ministers to pay personal attention to the problem of mounting losses in the power sector, especially as “corrective steps needed in this area lie entirely in the domain of the State governments.”

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