High rates hinder growth, inflation control still priority: FM

Admitting that interest rate hikes to contain inflation have impacted growth, Finance Minister Pranab Mukherjee said the government's immediate priority is to contain price rise.

"High inflation and also some of the effort to control liquidity has a detrimental effect on short-run growth. The immediate priority is to control inflation so that long-term growth prospects are not affected," Mukherjee said in a written reply in the Rajya Sabha yesterday.

Inflation has remained above 9% since December, 2010. Headline inflation, as measured by the WPI, stood at 9.7% in October, while the rate of price rise in the food segment was 10.6% for the week ended November 5.

The Reserve Bank has hiked interest rates 13 times since March, 2010, to control inflation, which has hurt industrial output.

"Monetary policy measures have helped contain inflation and anchor inflationary expectations, although both remain at an elevated level," Mukherjee said.

Growth in industrial production, as measured by the Index of Industrial Production IIP, slumped to 5% during the April-September period, raising apprehensions that it could impact second quarter growth. The IIP stood at 8.2% in the year-ago period.

The second quarter GDP numbers are scheduled to be released on November 30. The government has lowered the economic growth projection for the current fiscal by a percentage point to 8%.