Friday, 15 February, 2008

Prime Minisiter Says Curbing India's Inflation Is His Priority

Indian Prime Minister Manmohan Singh said 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,'' Singh said at a conference in New Delhi today. ``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 hurts consumer demand and investments. While companies seek conditions that favor faster growth, Singh may prefer a firmer grip over inflation, with general elections just a year away in a country where more than half the people live on less than $2 a day.

``Slowing growth is unacceptable to us,'' said Habil F. Khorakiwala, president, Federation of Indian Chambers of Commerce and Industry and managing director of drugmaker Wockhardt Ltd., before 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 Singh's comments, rising 2 basis points to 7.47 percent at 12:30 p.m. in Mumbai. A basis point is 0.01 percentage point. The benchmark stock index was little changed from yesterday's close.

Inflation Rate

India's inflation slowed to 4.07 percent 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's still high by world standards and must be reduced, the central bank's deputy governor Rakesh Mohan said yesterday.

Rising prices last year caused Prime Minister Manmohan 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 percent, according to Finance Minister Palaniappan Chidambaram.

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

Sustaining Growth

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

The prime minister said 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 modernization of the airports in New Delhi and Mumbai.

Singh said 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.

Singh said the planned 2.2 trillion rupee ($55.5 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 percent 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, Singh said.

``At the same time, we must be aware that we cannot be completely insulated from the chilly global winds that may blow in our direction,'' the prime minister said.

The share of exports in India's GDP is about 23 percent, almost double the level a decade ago.