Full text of finance minister’s statement on inflation

June 21st, 2008 - 6:16 pm ICT by IANS  

A file-photo of P. Chidambaram

New Delhi, June 21 (IANS) The following is the text of the statement made by Finance Minister P. Chidambaram Saturday, a day after India’s inflation reached 11.05 percent: “Yesterday, the WPI (wholesale price index) for the week ending June 7, 2008 was released. Predictably, grave concern has been expressed at the rate of inflation crossing 11 percent.

“I have carefully read the news reports and the statements made by a number of people. I have also read the editorials in the newspapers.

“It is necessary to place the matter in context. The context is a relentless rise in crude oil prices as will be seen from the following table:

DateWPI Inflation (percentage)Nymex Crude Oil Price ($/bbl)
24 Nov 2007 3.1198.19
1 Mar 2008 6.21101.85
31 Mar 2008 8.75127.37
7 June 2008 11.05137.54

“Since the Budget was presented on Feb 29, 2008, crude oil prices have increased by 37 percent.

“Besides, we administer the prices of only four petroleum products - petrol, diesel, LPG (liquified petroleum gas) and kerosene (PDS - public distribution system). All other petroleum products and derivatives are sold at market prices. When crude oil prices rise, those prices also rise. For the week ending June 7, 2008, the week-on-week increase in inflation was 1.77 percent. Of this, the petroleum products under administered prices contributed 0.79 percent and other petroleum products contributed 0.88 percent, making a total of 1.67 percent. Thus, fully 94 percent of the week-on-week increase in inflation is attributable to petroleum products.

“In the primary articles group, the index for food articles declined by 1.11 percent. For the group as a whole, the index declined by 0.37 percent. Even the manufactured products group registered only a small increase of 0.30 percent. It is the ‘fuel, power and light’ group that has sharply pushed up the inflation rate. The most important driver of the current inflation is crude oil prices.

“Last evening (Friday), I called on the prime minister and had a long discussion with him. This morning, I invited the Governor, RBI (Reserve Bank of India) to meet me and we have reviewed the situation.

“I am happy to take note of the sober and reasonable advice given by Shri Yashwant Sinha, a prominent leader of the principal opposition party. He has suggested that Government could have gone for ‘deeper cuts in taxes’. I have no quarrel with the proposition. After the Budget Estimates were presented to parliament, we have cut taxes and sacrificed considerable revenue. Only recently, we gave up revenues of Rs.22,000 crore (Rs.220 billion). I may point out that giving up revenues and borrowing an equivalent amount in the market in order to finance expenditure would also be inflationary. Nevertheless, I take Shri Sinha’s suggestion on board and will explore the options.

“We take comfort in the fact that there has been record production of wheat and paddy and we have adequate stocks of wheat and rice. We have procured 220 lakh (22 million) tonnes of wheat and, so far, 260 lakh (26 million) tonnes of rice. We will provide adequate wheat and rice to the PDS and we will also use our stocks to moderate prices in the open market. Hence, there is no cause for worry regarding wheat and rice.

“Given the difficult circumstances, government will take appropriate measures in order to contain and moderate inflation. A number of well-meaning experts as well as the editorials have advised that the authorities should take monetary measures; that we should not give room for panic; that we should take steps to quell inflationary expectations. That is precisely the course that the government has adopted in the past and will adopt in the future too.”

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