Inflation will come down to a moderate level by year-end

Union Finance Minister Pranab Mukherjee has said on Monday that the hike in petroleum product prices was essential to meet the under-recoveries of the oil marketing companies (OMCs). He also said that the Reserve Bank of India (RBI) would take a view on interest rates in its first quarter policy review at end-July.

“The enhancement of prices of essential commodities is always unpleasant but the bullet had to be bitten,” said Mr. Mukherjee while interacting with the media here after a meeting with the Chief Ministers of the western and the central zone states and chiefs of banking and financial institutions on issues related to priority sector lending, financial inclusion and progress of centrally-sponsored schemes.

Mr. Mukherjee said that though the prices of petrol would be market-determined, a gap of 1.49 per cent still existed on prices of diesel. He said even after this hike, the subsidy on LPG would be Rs. 227 and that on kerosene nearly Rs. 14.80.

Responding to a question on the inflationary pressure caused by the price increase in petroleum products, Mr. Mukherjee said “there would be some inflationary pressure. According to the Chief Economic Advisor, the direct effect on the inflation would be to the extent of 0.9 per cent.”

He admitted that the price hike would also have some cascading effect as the cost of transport would go up, which would in turn affect prices of other products in the economy. However, Mr. Mukherjee said that the overall inflationary pressure would moderate by July, particularly the food inflation and inflation for primary articles. He said the inflation would come down to a moderate level by the year-end.

The Finance Minister, however, refused to comment on the possible interest rate hike in view of inflationary build-up in the economy. He said the RBI would take the decision in its monetary policy slated for July-end, based on economic data.

Talking about the decisions taken at the G20 summit, Mr. Mukherjee said that nations having market compulsions would go in for immediate fiscal consolidation. However, for the rest of the countries, the withdrawal of stimulus package would be nation-specific. “As far as India is concerned we accepted partial exit policy,” said Mr. Mukherjee pointing out the partial roll-back of stimulus in his last budget.

Earlier, the Finance Minister met with Chief Ministers of Madhya Pradesh, Rajasthan, Maharashtra, and Goa. Chhattisgarh was represented by Agriculture Minister Chandrashekhar Sahu while Gujarat was represented by Finance Minister Saurabhbhai Patel. Mr. Mukherjee asked banks to follow the direction and guidelines issued by the Reserve Bank of India on priority sector lending, financial inclusion and disbursal of funds under various centrally-sponsored schemes. This was second such meeting of the Union Finance Minister with state chief ministers and bank chiefs. A similar meeting of Eastern and Northeastern states was held in Patna earlier this month. A meeting of Northern states is scheduled in Chandigarh next month, whereas a meeting of Southern states would be held in Hyderabad.

The Finance Minister's initiative is a departure from the earlier practice of meeting the banks' heads in New Delhi. The participation of Chief Ministers has been added to broaden the scope of meeting and it is expected that their feedback and suggestions would help finetune the implementation of flagship programmes of the government.

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