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Priority is curbing inflation: PM Singh

Rising prices last year caused Congress party to lose power in three states

(NEW DELHI) Indian Prime Minister Manmohan Singh said that inflation hurts the poor the most, indicating that controlling prices was the government’s top priority.

‘There have been some impatient editorials about the sacrifice of growth at the altar of inflation,’ Mr Singh said at a conference here yesterday. ‘I see things differently. Inflation is an iniquitous tax. It is essential that we ensure that the poor are not adversely affected by high inflation.’

India, the world’s fastest growing major economy after China, may slow for the first time this year since 2005, as the highest interest rates in six years hurt consumer demand and investments. While companies seek conditions that favour faster growth, Mr Singh may prefer a firmer grip over inflation, with general elections just a year awayin a country where more than half the people live on less than US$2 a day.

‘Slowing growth is unacceptable to us,’ said Habil F Khorakiwala, president of the Federation of Indian Chambers of Commerce and Industry and managing director of drugmaker Wockhardt Ltd, before Mr Singh’s speech.

‘Interest rates must be brought down to stimulate demand.’ Reserve Bank of India governor Yaga Venugopal Reddy refrained from reducing interest rates at the last monetary policy meeting on Jan 29 on concern that rising oil and food prices will stoke inflation.

The yield on the benchmark nine-year bonds held losses after Mr Singh’s comments, rising two basis points to 7.47 per cent at 12.30 pm in Mumbai. A basis point is 0.01 percentage point. The benchmark stock index was little changed from Thursday’s close.

India’s inflation slowed to 4.07 per cent in the week ended Feb 2 from a year earlier, near a five-month high.

While the pace of price gains is low in relation to historical data, it is still high by world standards and must be reduced, the central bank’s deputy governor Rakesh Mohan said on Thursday.

Rising prices last year caused Mr Singh’s Congress party to lose power in three states and fall further behind in the most populous province of Uttar Pradesh. The party faces 10 state elections this year and general elections before May 2009. People’s tolerance level of inflation is 4 per cent, according to Finance Minister Palaniappan Chidambaram.

India’s statistics office on Feb 7 said that India’s US$906 billion economy may expand 8.7 per cent in the 12 months to March 31, the weakest pace in three years. Growth was 9.6 per cent in the last financial year.

‘I am confident that this year, too, we will be able to sustain 9 per cent growth and hold the price line at acceptable levels,’ Mr Singh said. He said that construction of new roads, railway tracks, airports and other infrastructure was the ‘cornerstone’ of India’s development.

The prime minister said that civil aviation was going through an ‘unprecedented boom’ with two new international airports poised to start operations in the next few weeks in the southern cities of Hyderabad and Bangalore, apart from the ongoing modernisation of the airports in New Delhi and Mumbai.

Mr Singh said that the country’s railway system has undergone ‘revolutionary transformation’ in the past few years and expects companies to soon start investing in building logistics parks, railway stations and railcars.

He said that the planned 2.2 trillion rupee (S$78.5 billion) investment in roads in the next five years will further boost the nation’s infrastructure. He reiterated India’s plan to almost double spending on infrastructure to 9 per cent of gross domestic product by 2012. India’s growth is led mainly by domestic consumer and investment demand, and that was another reason to be optimistic about the nation’s growth prospects as the global economy shows signs of shrinking this year, Mr Singh said.

 

Source: Bloomberg (Business Times 16 Feb 08)

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