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Economic Survey: no quick-fix solution to rein in inflation

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P. Chidambaram
P. Chidambaram

Ashok Dasgupta

NEW DELHI: Concerned over rising prices, the Economic Survey 2006-07 has prescribed measured steps to check the inflationary spiral, even while advocating the need for care to sustain the high growth trajectory of the economy.

Taking due notice of the buoyancy witnessed in all sectors, barring the lower-than-anticipated growth in agriculture, the Survey, tabled in Parliament by Finance Minister P. Chidambaram on Tuesday, noted that the economy appeared to have "decidedly taken off and moved from a phase of moderate growth to a new phase of high growth."

"Inclusive" growth

Even as the current financial year is projected to notch up a gross domestic product growth of 9.2 per cent, coming as it does on the back of a nine per cent growth in the previous fiscal, the Survey pointed out that the "sustainability of [such] high growth with moderate inflation" as also the "inclusive" nature of such progress should be carefully considered.

The current inflationary pressure, it said, was caused by a shortage in supply, and there were no immediate, quick-fix solutions. "Poor agriculture performance, as the current year has demonstrated, can complicate maintenance of price stability with supply-side problems in essential commodities of day-to-day consumption."

The Survey expressed apprehension that the inflationary pressures might persist in the current year owing to a mismatch between supply and demand of some articles in the wake of firm international prices.

The silver lining was the laudable fiscal and financial performance. In particular, although expenditure management still remained an "unfinished task" of fiscal consolidation, the buoyancy witnessed in tax collections would lead to surpassing the overall revenue target set for the fiscal.

Coming a day ahead of the budget, this might well be an indication that Mr. Chidambaram is likely to persist with moderate tax rates.

Interest rates

On monetary policies, the Survey cautioned that measures aimed at reining in inflation were also hardening interest rates, indicating that a tight money policy was not perhaps the correct recipe. In view of the rising unemployment and poor performance of the social sector, the Survey recommended more effective steps in critical areas such as education, health, and support for the needy to achieve the "inclusive growth" target.

The buoyancy in the economy, the Survey noted, should not only generate adequate jobs but also provide resources for large interventions in critical areas of the social sector.

With more than 50 per cent of the population directly dependent on the farm sector and related activities, the dismal agricultural growth at 2.7 per cent would have a serious fall-out on "inclusive" growth.

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