The
recent spate of rising inflation figures has become a
concern for the Indian economy, and as per the Economic
Survey 2007 this is here to stay.
Brace
up for a bout of sustained inflation, that''s what the
Economic Survey suggests. It says that the pressure of
prices will persist during the year because of short supply
of essentials, and firm international prices. On the other
hand, demand is being fed by high growth, the surge in
reserve money because of foreign inflows, the rise in
money supply and the huge increase in credit.
The
impact of duty cuts and the Reserve Bank''s policies will
be felt in the days to come. But unless supply of essentials
is increased, inflation will not be fully tamed.
The
survey calls for increase in domestic production of staples
like rice, wheat, cooking oils and pulses through better
technology. It says, in the short run, there will be a
gap between the remunerative price paid to farmers and
fair price to consumers but these should not translate
into increased food subsidy.
The
Eco Survey also says that high growth is not incompatible
with low inflation, in other words low inflation can exist
with a high growth rate. It says while employment opportunities
have improved, there is unemployment, which is high not
because growth has been high but because there hasn''t
been sufficient growth and in fact it makes a case for
higher growth.
What
the Survey says:
- Expects pressure on prices during this year
- Says short supply of staples, high global prices are
the reasons
- Demand fed by high growth, foreign inflows, money supply,
credit
- Impact of duty cuts, dear-money policies to be felt
shortly
- But inflation will remain unless supply of staples improves
Chief
Economist at Crisil, Subir Gokaran says, "I
think the survey is being very realistic and blunt but
it has made an admission that its difficult to control
the kind of inflation, which is driven by food prices
in particular. It is a challenge from a medium-term perspective
to keep inflation within check. One should not expect
very immediate relief or solutions to food driven inflation.
I appreciate the candor that the survey is expressing
on this issue."
Therefore,
while one needs to be prepared for sustained inflation,
there is a tone of caution against measures that could
hurt growth. In other words it calls for a calibrated
approach to contain inflation, so that while we have low
inflation the growth momentum is sustained.
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