New Delhi, Feb. 15: The government is building up a formidable armoury to fight inflation, which is now at a two-year high of 6.73 per cent.
It is likely to announce steep cuts in customs and excise duties in the budget on products used by the core sector and encourage bulk import of milk powder, lentils and edible oils.
Top officials said a committee of secretaries is preparing the timetable for implementation, while state agencies such as STC and MMTC have been asked to enter into contracts for imports to cool down prices.
The commerce ministry has indicated that customs duties on goods for the core sector such as cement, metals and paper may be reduced to bottle up the price genie.
Commerce minister Kamal Nath said, “Prices are rising because supply has not kept pace with demand in a rapidly growing economy. We are trying to see where these supply gaps are arising. If need arises, imports will be made more flexible.”
The only silver lining is in the forecast for rabi wheat, which is 5 million tonnes (mt) higher than last year’s output of 69.5 mt. “Despite the rains, it promises to be a bumper harvest,” said experts in the agriculture ministry. Officials said traders are releasing wheat stocks to bring down prices as they are expecting a better harvest.
Top North Block officials said the measures put in place by the Reserve Bank to check money supply will soon have an impact on prices. “There is always a time lag between a decision and its impact on inflation — wait for a few weeks and see.”
In less than three weeks, the Reserve Bank of India (RBI) first raised the repo rate and then pushed up the cash reserve ratio to put brakes on the credit growth rate.
Prices of agricultural and industrial items have soared on the back of a 9 per cent plus economic growth rate.
Bankers expect the RBI to raise the repo rate once again in April to check prices. The high rate of growth in credit and foreign exchange reserves have pushed the growth rate in money supply to more than 21 per cent. However, the RBI antidotes are expected to bring down the growth rate in money supply to about 20 per cent by the end of this month.
It is expected that the checks on money supply will rein in the growth rate of the manufacturing sector, though overall growth will continue to be high on the back of higher farm sector growth and the boom in the services sector.
Finance minister P. Chidambaram today said rising prices of pulses, milk and vegetables are affecting the common man and cannot be attributed to seasonal factors alone.
“What is worrisome is prices of pulses, milk and vegetables are not seasonal alone. This is more than seasonal, which is causing the present disturbance in the price situation. It is affecting the common citizen,” Chidambaram said.
When asked if the ministry would cut duties on oil products, he said, “That I cannot say as the petroleum minister has already said the burden will be shared by the oil companies and the government.”