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Policy pill to check price surge

New Delhi, Feb. 3: Prime Minister Manmohan Singh today said the government was committed to reducing the rate of inflation through appropriate policy measures.

Addressing the meeting of the Economic Advisory Council (EAC), he observed that while the global environment was favourable to sustain India’s higher growth rate, it was necessary to ease domestic constraints on growth.

EAC chairman C. Rangarajan identified inflation as a key macro-economic challenge in the short term.

He said steps taken by the government and the Reserve Bank of India should dampen inflationary expectations and provide relief on price front.

“While global factors and rising demand had contributed to inflation in some sectors, supply constraints had been the other culprit. Removing supply constraints through appropriate intervention in the real economy, lower tariffs, higher agricultural and industrial productivity would ease the price pressure,” he said.

Rangarajan said the current robust economic growth “was being driven by an increase in consumption and investment”. He was confident that the government would be able to adhere to its fiscal targets this year.

Presenting an upbeat assessment of the state of the economy, the EAC reported that per capita income growth would be more than 7 per cent in 2006 and 2007.

This is for the first time in 15 years that overall economic growth rate is expected to be close to 9 per cent. The EAC also reported a sharp increase in the savings rate at 35 per cent of the national income.

Participants at the EAC meet, including senior economic editors and analysts, said inflation management was the key short-term priority.

They advocated further trade liberalisation and other measures to increase the “competitive environment” in the economy. They called for the acceleration of economic reforms to sustain growth momentum, especially in agriculture and trade sectors.

They emphasised the need for increased investment in infrastructure, economic pricing of power, water and other scarce resources, faster reforms in the public sector and improved education, health care and rural extension services.

Participants also emphasised the need to encourage growth of small and medium enterprises.

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