India’s handling of inflation to be closely tracked

April 13th, 2008 - 11:51 am ICT by admin  

A file-photo of P. Chidambaram
By Arun Kumar
Washington, April 13 (IANS) Faced with a slowing world economy and market turmoil, world financial leaders propose to closely follow how India tackles the problem of rising prices by balancing growth with the potential risks to price stability. “India has become more and more a big player in the world economy,” International Monetary Fund (IMF) managing director Dominique Strauss-Kahn said at a press conference Saturday after a meeting of the Fund’s primary advisory body.

“The Indian economy is hit, as the other ones, by the financial turmoil on the one hand and the increase in prices on the other hand. So, the answers India, as others, are trying to give to the situation are very important ones,” he said.

Strauss-Kahn said the way Indian Finance Minister P. Chidambaram underlined the problem of the increase in food prices, of the consequences it may have, had impressed everybody in the International Monetary and Financial Committee (IMFC).

“He was then followed by many ministers referring to his first speech and approving what he has said,” Strauss-Kahn said. “So, I think Chidambaram takes the lead on this question, and it is following his question and his proposal that we are going to work in the coming weeks.”

Strauss-Kahn also appreciated Chidambaram’s support for the quota and voice reform, and the income reform of the Fund. He and a long list of other ministers were “so happy of the reform and approving not only the result of the reform, but the fact that the Fund is moving”.

The proposed reforms seek to give emerging economies - India, China, Brazil, Mexico and South Korea - a little more voting power in IMF. The 185 member countries are expected to approve changes in their relative voting power later in April, although some nations that stand to lose from the shift - such as Russia, Argentina, Saudi Arabia, Iran and Egypt - oppose the move.

IMFC met Saturday as part of the IMF-World Bank Spring Meetings to discuss how to handle the deteriorating growth prospects for the global economy, the still unfolding events in financial markets, and the growing threat of rising inflation in some economies. Earlier, addressing the IMFC, Chidambaram had urged policy makers and central banks to carefully balance growth and financial stability considerations with the potential risks to price stability.

Describing the emergence of global inflationary pressures as “another worrisome development”, he said: “The deflationary impact of globalisation seems to have run out with increasing wage and inflationary pressures.”

“There is growing apprehension that financial stability concerns are distracting central banks in advanced economies from emerging inflation risks,” Chidambaram said.

Strong inflationary pressures are also evident from the supply side. Rising food prices are an increasing concern not only in developing countries but also in developed economies.

This rise has been exacerbated by the increasing diversion of food grains and other crops towards bio-fuels, he noted. Fuel prices continue to remain high and volatile. The confluence of these developments has implications for long-term inflationary expectations.

“Policy makers and central banks will, therefore, have to carefully balance growth and financial stability considerations with the potential risks to price stability,” Chidambaram said.

In a communiqu

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