• Home
• /
• Business

India fighting inflation but growth important: PM

NEW DELHI - India's soaring inflation is due to external factors but the authorities are taking steps to insulate the poor against it while also balancing the need for a high pace of economic growth, its prime minister said on Friday.

Prime Minister Manmohan Singh set out challenges for his government as it heads towards national elections due by May 2009, saying Asia's third-largest economy must grow at 10 percent every year to get rid of poverty and generate employment.

Annual inflation is running at 12.4 percent, its highest since the current index became available in 1995, and rising prices are expected to be an election issue as they erode the spending power of hundreds of millions of poor voters.

‘The Reserve Bank of India is taking all steps to control the rate of money supply so that prices are controlled,’ Singh said in a speech to mark the 61st anniversary of India's independence from British rule.

‘But in taking these steps we need to keep in mind that we do not do anything which hurts the growth rate.’

The $1-trillion economy has grown at an average of nearly 9 percent a year since Singh's government took power in 2004 but in the past half year the pace has been accompanied by an acceleration in inflation stemming largely from oil, food and metals prices.

‘I know how much each one of you is concerned about the recent rise in prices. The inflation we have seen this year is due to external factors,’ Singh said.

‘We are taking determined steps to bring prices under control.’

PAY HIKE AND NUCLEAR DEAL

The central bank has tightened monetary policy aggressively in the past two months and its key lending rate is now at its highest in seven years at 9.0 percent.

The government has also cut import duties to keep a lid on prices but a key government adviser said this week inflation could hit 13 percent soon before starting to cool by December.

The pace of growth is also losing momentum and a government panel has said the economy will grow 7.7 percent in the fiscal year to end-March, less than the 8.0 percent expected by the central bank.

The government decided on Thursday to increase the wages of 5 million government employees at an estimated cost of $5.2 billion this fiscal year, exceeding recommendations of a pay commission in a move newspapers said was aimed at the ballot box.

Singh defended the move, saying the government had gone beyond the recommendations of the pay panel to ensure the welfare of armed forces and government workers at the lower levels.

India faces obstacles to rapid non-inflationary growth: its roads, ports and transport systems are struggling to keep up with the pace of expansion and it suffers chronic power shortages.

Singh said it must apply modern science and technology to find long-term solutions to its energy problem.

Atomic energy was a clean, renewable source to meet the challenge and a nuclear agreement the government is negotiating with developed countries would end India's nuclear isolation.

‘It will enable us to provide electricity to meet the needs of our farmers, our artisans, our traders and our industry.’

Singh's coalition won a vote of confidence in parliament last month ensuring its own survival and that of the civil nuclear deal with the United States.

The proposed accord aims to give India access to US nuclear fuel and equipment, overturning a ban imposed after New Delhi, which has not signed the Non-Proliferation Treaty, conducted a nuclear test in 1974.