Growth may moderate, inflation a major challenge: Pranab (Lead)

June 17th, 2011 - 9:30 pm ICT by IANS  

Pranab Mukherjee New Delhi, June 17 (IANS) The monetary tightening policy pursued by the Reserve Bank of India might moderate growth in short-term even as controlling inflation remains a major challenge for the government, Finance Minister Pranab Mukherjee said here Friday.

“Monetary measures may moderate growth rate in the short-term if it continues,” Mukherjee said while addressing a banking conclave organised by industry forum Assocham here.

Mukherjee said controlling rising prices was a major challenge for the government and the Reserve Bank of India (RBI) - the country’s central bank - as inflation had remained stubbornly high despite a series of fiscal and monetary measures.

“Inflation remains a major challenge for the government in short-term. It has implications on sustaining growth momentum,” said Mukherjee.

However, the finance minister said that medium term growth prospects continued to remain buoyant.

The RBI Thursday hiked repo rates by 25 basis points in a bid to curb inflation and indicated that more such increases were in the offing.

With more such hikes on the horizon, industry has been clamouring to policy makers to hold off more increases in key interest rates, saying it was hurting capacity expansion and making cost of operations go up.

“In the past few weeks we have taken measures to address inflation concerns. The monetary policy has been gradually tightened and at the same time, new initiatives were announced in the union budget to address some of the bottlenecks in the food supply chain,” Mukherjee said.

The finance minister, however, was hopeful of still meeting growth targets in spite of the recent industrial output slowdown. The government had set 8.75 percent (with a margin of 0.25 percent) as the gross domestic product (GDP) growth target for the current fiscal.

“Industrial growth has slowed down recently. But the overall growth targets remain intact for the current fiscal,” he said.

Mukherjee also said GDP had accelerated at a fast pace in the last fiscal because of increased government spending but it had come at a cost of high fiscal deficit.

“We have to bring fiscal discipline. If high deficit continues at this time, it will be disastrous,” said Mukherjee.

He said the government would target 9 to 9.5 percent growth for the Twelfth Five Year Plan period (2012-17).

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