Pranab for RBI balance on growth, inflation

As the Reserve Bank of India draws flak from many a quarter over its successive rate increases that dampened growth rather than inflation, Union Finance Minister Pranab Mukherjee on Tuesday exuded confidence that the central bank would balance the contrasting needs of boosting economic expansion and bringing down price pressure.

Admitting much more was needed to curb inflation, the minister asked state governments to contribute by augmenting supplies. He underscored the need for amending the Agriculture Produce Marketing Committee (APMC) laws in each state, to enable freedom for farmers to sell for retail outlets. He made a statement on his own in Parliament, as the Opposition geared up to move an adjournment motion on the issue of inflation. However, he only tabled the statement, instead of reading it.

He exuded confidence that inflation would come down in the range of six-seven per cent by March-end, a claim that has not gone down well with the Opposition. However, at the end, the government seemed to be able to persuade the Opposition to have a discussion on the finance minister’s statement from tomorrow.

“Going forward, I am sure the RBI takes into account the important concern of balancing the targets of controlling inflation and keeping up growth and employment generation,” the statement read.

RBI’s 13 policy rate rises have brought GDP expansion down to a six-quarter low of 7.7 per cent in the first quarter of this financial year, while pressure on inflation does not seem to be working much. While inflation never came below nine per cent for 11 months in a row till this October, signs of growth for the second quarter are also not as promising.

Highlighting the need to address supply-side issues, the minister asked for the help of state governments.

He underscored the need for improving supply chains. “A durable solution to inflation in an economy with rising income levels lies in improving agricultural productivity, strengthening food supply chains and augmenting capacities in the manufacturing sector to keep pace with the growth in demand,” the statement said.

It requires a facilitative policy environment and, where required, increased public investments, so that these measures can be actively pursued, he added.

“Both the central government and state governments have a specific role to play. We at the Centre are addressing the policy lacunae and creating mechanisms to catalyse the required activities. The state governments also have to do the needful in several areas,” said the statement.

He particularly highlighted the need for state governments to help agricultural extension, raise investment in agriculture and in agricultural marketing. “This falls under their (states) purview under the Constitutional division of responsibilities. More important, they have to come forward and take advantage of various initiatives that have been launched by the central government,” the statement added.

Amending the APMC Act would allow retailers to directly purchase from farmers. This would bring better remuneration to farmers, check wastage and allow competitive prices in retail markets.

“Collectively, we also need to take steps that allow unhindered flow of food and other perishable items from one region to another,” he added.

The finance minister expressed hope that inflation would come down to six-seven per cent by March-end, from 9.71 per cent in October. Reacting to the claim, CPI leader Gurudas Dasgupta dubbed the finance minister as an astrologer, while BJP’s Shahnawaz Hussain said the government’s claim could not be relied upon as they have often made such “false promises”.

Parliamentary Affairs Minister Pawan Kumar Bansal told reporters the Lower House would take up the discussion on the statement of Finance Minister Pranab Mukherjee on the price situation.