Union Finance Minister Pranab Mukherjee on Tuesday did not rule out the possibility of the inflation rate spiralling further and growth momentum getting affected as a result of creeping international oil and commodity prices and the sovereign debt crisis in Euro-zone countries.
Inaugurating the 83rd annual general meeting of the Federation of Indian Chambers of Commerce and Industry (FICCI), Mr. Mukherjee was particularly concerned about the danger of the debt crisis in some European countries spilling over to financial markets stressing that the impression that he had gained during the G-20 meeting a fortnight ago was that these countries were not sure of finding a solution to the problem.
Underscoring the gravity of the current external situation, Mr. Mukherjee said the global recovery remained fragile and advanced economies were exhibiting large fiscal deficit, high public debt and unemployment levels and indifferent aggregate demand. In such a situation, it was imperative for India to address the problem through “our own domestic solution” to cushion the country against the twin dangers.
He, however, assured that the rapid recovery of the growth momentum was comforting “but we cannot be complacent.”
To maintain the growth momentum, he said the need was to effect adjustments in the composition of growth on the demand and supply sides. “We have to ensure that the revival in private investment is sustained and goes back close to pre-crisis growth rates.
“This requires a strong fiscal consolidation to enlarge the resource space for private enterprise.”
On the inflation front, the Finance Minister said that the creeping increase in international crude oil and other commodity prices “are a reality that we are already confronting” and added that “the possibility of the global commodity inflation adding to domestic inflationary pressure cannot be ruled out.”
Referring to the domestic supply side pressure on food prices, Mr. Mukherjee said that both the government and the RBI have been supporting the recovery process without compromising on price stability.
“The task has not been easy but we are making progress.”
In his opinion there was a need to improve supply response of agriculture to the expanding domestic demand and step up investment in the agriculture sector to help address the structural concerns on inflation management. “It will also ensure a more stable macroeconomic environment for continued high growth in the medium term.”
Mr. Mukherjee promised to evolve innovative ideas and new models of financing to speed up development of infrastructure.
