No ‘magic bullet’ to tame inflation: Ahluwalia

June 15th, 2008 - 11:12 am ICT by IANS  

A file-photo of Manmohan Singh

New Delhi, June 15 (IANS) There is no “magic bullet” with the government to tame inflation and consumers will have to pay more if crude oil prices surge further, Planning Commission Deputy Chairman Montek Singh Ahluwalia has said. “There is a case for insulating the poor - a much weaker case for insulating the general consumer. There is some case, because we don’t want to shock them too much. But very little case for insulating the rich,” he said.

“So the fact is: Yes, if oil prices keep on rising, the government will have to do something,” Ahluwalia told Karan Thapar’s “Devil’s Advocate” programme for CNN-IBN television channel Sunday.

“I think I have no hesitation in saying that there is no magic bullet with the government - that if import prices increase, we cannot insulate the domestic consumer indefinitely.”

The key policymaker’s comments come against the backdrop of India’s annual rate of inflation zooming to 8.75 percent for the week ended May 31, with the impact of the recent hike in fuel prices yet to reflect in the official price index.

Analysts predict that the hike in transport and cooking fuel prices will result in the inflation rate escalating further by 80 basis points, taking the annual increase in the price line precariously close to double-digit levels.

According to Ahluwalia, the hike in fuel prices, despite resistance by political parties and the average citizen, was a clear signal that if crude prices were to rise further, there could be another bout of price hike.

“I think the fact is there has been generally a resistance in the country to see higher fuel prices. All we have done is give a signal that if energy prices rise then the people have to get ready to pay more.”

The former World Bank economist and former finance secretary in the Indian government also asked the people to be patient, saying large problems like fighting inflation could not be resolved instantaneously.

“I am not talking about waiting for years - I am saying that in a few months’ time, certainly by September-October, we will be in a much better position on the inflation front.”

Ahluwalia was also questioned as to how the dream team comprising himself, Prime Minister Manmohan Singh and Finance Minister P. Chidambaram had allowed such a situation to arise in the first place.

“That is the problem. You are putting too much emphasis on the so-called dream solutions,” he said, adding: “I think this sea has become a little choppy. So we have had an external set of circumstances that have imposed some difficulties.”

He said the four-year-old United Progressive Alliance (UPA) was managing the situation well, especially when a comparison is made with other nations. “I think the ship is steering pretty much in the direction it should.”

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