13-year high inflation at 11.05 percent adds to government woes (Roundup)

June 20th, 2008 - 8:08 pm ICT by IANS  

A file-photo of Sensex

New Delhi, June 20 (IANS) India’s inflation rate climbed to a 13-high of 11.05 percent for the week ended June 7, compounding the woes of a ruling coalition that is fighting with its back to the wall to salvage a prestige-staking nuclear deal with the US. The impact of zooming inflation was even felt in the capital market with the Sensex losing 516.7 points, the biggest drop since August 2007.

India’s economy registered a growth of 9 percent in 2007-08, and the government has maintained that despite inflationary trends, the growth would remain in the range of 8 to 8.50 percent in the current fiscal.

The wholesale price index (WPI) released Friday by the commerce and industry ministry showed an increase of 2.3 percent over the 8.75 percent inflation rate for the week ended May 31.

The data showed that the government’s June 4 decision to hike diesel and petrol by Rs.3 and Rs.5 a litre, and cooking gas by Rs.50 a cylinder, had triggered inflationary trends.

“Double digit inflation was expected after the government decided to increase fuel prices. We had cautioned the cabinet about this,” Finance Minister P. Chidambaram told reporters a few hours after the price data was released.

The WPI data for the fuel, power, light and lubricants group showed a 7.8 percent rise and accounted for 94 percent for the high inflation rate, though the WPI for food articles actually declined 1.1 percent during the week.

Chidambaram admitted that the government faced “a difficult time” in containing inflation, and added: “More strong monetary measures are needed. The government is aware of the difficulties.”

Sources said that the Cabinet Committee on Prices (CCP) would meet soon to initiate more administrative measures, while the government might ask the Reserve Bank of India (RBI) to take more fiscal measures.

The CCP last met March 31 when the government announced a ban on the export of non-basmati rice, and reduced import duty on various types of edible oils.

RBI, India’s central bank, had increased the repurchase rate (repo rate) June 11 by 25 basis points to 8 percent from 7.75 percent, anticipating double-digit inflation.

More administrative and fiscal measures, however, appear to be a difficult proposition for the government, which is why Chidambaram refused to specify them.

A hostile Left has complicated matters, having threatened to seal the government’s fate if it went ahead with the India-US nuclear deal.

“The government is caught in a difficult political and economic situation,” said a finance ministry official, adding that the centre might adopt “wait-and-watch” approach for a week, hoping the inflation would stabilise.

The wholesale index price for light diesel oil showed an increase of 21 percent, liquefied petroleum gas 20 percent, naphtha 17 percent, furnace oil 15 percent, aviation turbine fuel 14 percent, petrol 11 percent, high speed diesel 10 percent and bitumen seven percent.

The WPI for non-food items went up by 1.4 percent, largely due higher prices of niger seed (13 percent), raw cotton and mustard seed (4 percent), and raw jute and gingelly seed (2 percent).

The commerce and industry ministry adjusted the provisional inflation figure of 7.33 percent for the week ended April 12 to a final figure of 7.95 percent.

The industry lobbies too expressed concern over inflation crossing the double-digit mark. “At 11.05 percent, inflation is reaching the concern zone. It is also a reflection of the global situations on critical items like petroleum products, base metals etc,” said Confederation of Indian Industry (CII) president K.V. Kamath in a statement.

“This is the first weekly figure to factor in the fuel price hikes announced June 4, and hence is not completely unexpected,” he added.

Associated Chambers of Commerce and Industry of India (Assocham) said rise in inflation was expected after fuel price hike, but hoped the double-digit inflation would not stay over for long.

“Indications are that oil prices would subside and thereby would have impact on prices of essential commodities, which would result in scaling down inflation,” said Assocham president Sajjan Jindal.

While the ruling Congress asked the government to take appropriate fiscal measures to curb the inflation, Communist Party of India (CPI) demanded the resignation of Finance Minister P. Chidambaram.”The increase in the inflation is most unfortunate. We appeal to the government to take appropriate fiscal and monetary measures, even if they hurt growth,” Congress general secretary Veerappa Moily said. Pointing out that the measures to control inflation may affect certain sectors badly, Moily said there should be some “rigorous measures”.Talking to reporters in Raipur, CPI general secretary A.B Bardhan said: “We want his (Chidambaram) immediate ouster. All fiscal and monetary measures of Chidambaram have totally failed and he has proved to be a failure.”

The Communist Party of India-Marxist (CPI-M) in a statement said inflation was the “direct result of the steep increase effected by the government in the prices of petrol, diesel and cooking gas”.

“The Manmohan Singh government is squarely responsible for this dismal situation. It cannot escape by blaming global inflation,” the party said.

The main opposition Bharatiya Janata Party (BJP) said the government must go as it had failed to contain inflation.

“Every Friday, the country shudders. This government must go now,” BJP’s spokesperson Rajiv Pratap Rudy told reporters here Friday.

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