India says economy in high growth phase but inflation a worry

NEW DELHI - India’s economy has ‘taken off’ but rising prices are a key worry, the government said on Tuesday, a day before the release of the national budget expected to contain inflation-fighting measures.

By (AFP)

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Published: Tue 27 Feb 2007, 5:28 PM

Last updated: Sat 4 Apr 2015, 8:31 PM

Economists have expressed concern about India’s economy overheating with growth running at more than nine percent and inflation near two-year highs.

‘The economy appears to have decidedly taken off and moved from a phase of moderate growth to a new phase of high growth,’ the finance ministry said in its annual report card on the economy.

‘However, there are some genuine concerns on the inflation front,’ said the economic survey released by Finance Minister P. Chidambaram in parliament.

The upbeat report came a day ahead of the annual budget expected to highlight measures to contain inflation as the ruling Congress government faces a slew of state elections in which rising prices have emerged as a major issue.

The state elections are seen as a dress rehearsal for federal polls which must be held by May 2009.

‘We share the concern (over inflation) and we have taken a number of steps to moderate prices and we will continue to take steps,’ Chidambaram said outside parliament.

Inflation fell back to 6.63 percent last week from a two-year high of 6.73 percent earlier in the month but remains far above the central bank’s tolerance level of 5.0 to 5.5 percent.

The price rises, driven by rises in the cost of food and raw materials, have especially hurt India’s poor masses who helped bring Congress to power in 2004.

Amarinder Singh, chief minister of India’s breadbasket northern state of Punjab whose Congress party was facing expected defeat in local polls, said on Tuesday that prices rises were ‘a factor’ in the party’s poor showing .

The fight against inflation had to be ‘calibrated so that policies contain inflation without compromising growth’ in the country of 1.1 billion people, the report said.

‘With appropriate policies, it should be possible to maintain and manage high growth without inflation,’ it said.

The economic report forecast growth of 9.2 percent for the financial year ending March 2005, up from nine percent a year earlier, driven by a ‘sustained improvements’ on the industrial front.

‘A sense of optimism characterizes the current economic conjuncture,’ the report said.

But agricultural performance was a worry, expected to grow just 2.7 percent this year, down from six percent a year earlier, due partly to lack of investment and poor fertilizer use, the report said.

‘With more than half of the population directly depending on this sector, low agriculture growth has serious implications for the inclusiveness of (economic) growth,’ the report said.

While agriculture only accounts for 18.5 percent to India’s gross domestic product, down from nearly a quarter just a few years ago, the number of people dependent on farm income has remained virtually unchanged.

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