Mumbai: The government expects to cushion the effects of any counter-inflationary measures on the pace of economic growth through long-term support to dependent sectors like agriculture, education, health care etc, finance minister P Chidambaram said.

He was addressing a valedictory function of the Indian Merchants Chamber's centenary celebrations in Mumbai yesterday.

"The present phase of setback to pace of growth, caused by the "imported inflation," could be overcome by through long-term measures like providing impetus to agriculture and refurbishing the education and health sectors," he said.

If the Reserve Bank of India decided to raise the cash reserve ratio (CRR) and lending rates for banks to counter inflationary trends, it would certainly affect the rate of GDP growth.

"The choice is clear. If we want to check inflation, we must be prepared for a slightly lower rate of growth," he pointed out.

Chidambaram blamed the extraordinary increase in the prices of food grains, pulses, edible oil as also those of key commodities like steel, non-ferrous metals and crude oil in the world market as the main cause of the current inflationary trends in the country.

The government, Chidambaram said, was determined to curb inflation in the short-term through fiscal and monetary measures, besides streamlining the public distribution system.

"But, in the long term, inflationary trends can be contained only through efficient supply side management, by way of increasing domestic production of foodgrains and other essential commodities and achieving self-sufficiency or near-self-sufficiency," he said.

Inflation, he said, was not a new phenomenon for India; the country passed through a far higher rate of inflation in the 1970-80s and again in 2000-02 . Besides, in those years India's economic growth rate was far lower than what it was today.

He said that a consistently high economic growth rate in excess of 8 per cent would double India's GDP every ten years, and would make India a leading economy in the world. He urged the corporate world not to be despondent about the future of India by cyclical ups and downs caused by a global recession.

Though India was not fully insulated against contamination by the global recession, the bulk of the Indian economy was dependent on the growing number of consumers in the domestic market, he said.

"At present, our domestic market consisted of only one-half of the Indian population, leaving out the other half, that has no purchasing power. As we go about educating and empowering the other half, it would create a huge market for Indian industries," he said.

Chidambaram said India could meet new challenges only with the help of well- educated, healthy and enterprising human resources. He said the thrust of the Union budget this year was mainly on strengthening the agricultural sector, establishing connectivity with rural areas and refurbishing the basic educational and healthcare systems, so that the new generation of educated, resourceful Indians would be ready to cope with the problems of the next 100 years.

Explaining the rationale behind slack growth of the farm sector, he said, "When a country's economy acquires a strong growth momentum, the first to be benefitted are those productive sectors, such as the service and manufacturing sectors, which yield the quickest return on investment and last to be benefitted are those, like the farm sector, in which the return on investment is the slowest."

Turning to the man-made problem of global warming, caused mainly by carbon emission, he commended Prime Minister Manmohan Singh's stance - which was endorsed by German Chancellor Angela Markel - that carbon emission by developing countries should never exceed that by developed countries. Therefore, any meaningful initiative to reduce the emission level should first come from the developed nations.

He also cited the recent steps taken by the Indian government to curb carbon emission in the agricultural sector by setting in motion an institutional process. He praised the Indian Merchants' Chamber's 'Green Initiatives' and taking upon itself the advocacy role through involving participation of the masses in the global effort to curb climate change.

The finance minister wished a glorious and fruitful second century of life ahead for Indian Merchants Chamber.

Earlier welcoming the finance minister, IMC president Niraj Bajaj expressed the hope that the finance minister would be able to stem the recent trends of deceleration in GDP growth and rising inflation.

Deepak Parekh, chairman, HDFC, mooted increased partnership between industry and government for solving major economic problems faced by the country.
Parekh said till now Indian consumer was insulated against the impact of global recession and inflation, mostly by way of extension of huge subsidies, that were not a long-term remedy to the deep-rooted ills.

He also appreciated the finance minister's budgetary provisions for creation of a vibrant debt market and urged the finance minister to amend the investment guidelines for the pension and provident funds for securing the huge funds required for financing the infrastructure projects.