Inflation at 3-4% will be ideal, says Pranab

With inflation close to the double digit mark, finance minister Pranab Mukherjee on Thursday said that the ideal rate of price rise would be 3-4 per cent.

“It would have been ideal if we could have kept inflation at three, three-and-half or four per cent,” he said while winding up a debate on first batch of supplementary demands for grants in the Rajya Sabha.

Under the present scenario, even 5-6 per cent could be acceptable, Mukherjee said. There is no correlation between growth and inflation, at least, to the extent it is being projected, the minister said. While the overall inflation was 9.44 per cent in June, food inflation soared to 9.90 per cent for the week ended July 30. Disputing the contention that there was always a co-relation between growth and inflation, Mukherjee said that inflation was high in 1974, 1980 and 1991, but not the growth. “Those were the regimes of slow growth”, he added.

Describing inflation as an economic phenomenon, Mukherjee said, it was on account of “distortion between demand and supply” and it would take some time for the government to address the problem. He further said that food and fuel inflation are global phenomenon and India is not an exception. “Please show me the path, I will accept it”, he said, pointing out that India had to import more than 75 per cent of its oil requirements. The oil prices are ruling at about $107 a barrel in the international market.

On fund flows from financial institutional investors (FIIs) into India, Mukherjee said, “Caution is needed. Therefore, we shall have to keep in mind the volatile nature of flow of FII.” “We will not allow ourselves to be exposed and vulnerable,” he added.

On the economic growth projections made by the Prime Minister’s economic panel, PMEAC, (8.2 per cent) and Planning Commission (8.6 per cent), Mukherjee said, “Europe’s and America’s growth is not even two or two-and-a-half per cent. In that context, 8 per cent is not all that bad.”

It may not be good; but it is not that bad".

In February, the government had projected the GDP growth between 8.75 and 9.25 per cent.