Containing inflation without impacting growth difficult

July 27th, 2008 - 3:57 pm ICT by IANS  


New Delhi, July 27 (IANS) Balancing of the monetary policy in order to contain inflation without impacting growth will be a major challenge, India’s apex export promotion organisation has said. The Federation of Indian Export Organisations (FIEO), the umbrella organisation of all export promotion councils set up jointly by the commerce ministry and private trade and industry, said the challenge would remain despite decreasing oil prices and a healthier stock market.

“According to analysts, inflation is expected to cross the 15-percent mark with wholesale price index moving higher due to producers passing on higher input costs down the chain to the customer,” FIEO president Ganesh Gupta said in a statement.

He said in such a scenario, the central Reserve Bank of India (RBI) may quite possibly look at ways to curb lending rates.

“An increase in the cash reserve ratio (CRR) and repo rate (the rate at which RBIs lend to commercial banks) is anticipated which may further increase the lending rates to the industries in general and the Ministry of Micro, Small and Medium Enterprises (MSME) export sector”, Gupta said.

His comments come ahead of the forthcoming review of the monetary policy, to be announced Tuesday.

“The anticipated monetary tightening may further choke production growth indices as has been indicated by data released by the government recently,” Gupta added.

Manufacturing, which accounts for a share of 15.5 percent in the total gross domestic product (GDP), witnessed a slowdown to 5.3 percent in April-May this fiscal, compared to 12.7 percent in the same period last year

“It may be a moment of introspection for policy makers to draw up initiatives that may offset the increase of production cost all along the value chain due to higher lending rates,” Gupta said.

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