Ahead of the Reserve Bank of India's (RBI) mid-quarter policy review, Union Finance Minister Pranab Mukherjee said that though inflation remains a concern, growth is unlikely to be sacrificed.
Thanks to rising inflation, about 20 million families might go below the poverty line in the list being compiled by the Planning Commission, according to Mukherjee. “The Planning Commission is working on it. The Tendulkar Committee had put the figure at about 80 million,” he said. Annual food inflation surged to 11.47 per cent for the week ended August 28 from 10.86 per cent in the previous week.
“"We are monitoring the prices of 18 essential commodities on a daily basis. RBI will take appropriate measures as and when needed. At the same time, I cannot go reverse on the growth path,” said Mukherjee at the 179th annual general meeting of the Calcutta Chamber of Commerce here today.
RBI will present its monetary policy on September 16. It has already hiked the repo rate (the rate at which it infuses liquidity into banks) by 100 basis points and the reverse repo rate (the rate at which it mops up liquidity) by 125 basis points since March to tame inflation.
The reason behind the rise in poverty is the change in parameters in defining a below-poverty-line family, which, as against the earlier norm of calories, now takes into account factors like access to education, power, financial inclusion and social security. Much of the current rise in food prices can be attributed to rising minimum support prices to farmers over the last five years, and the need to provide subsidised food grain to poor people.
The Supreme Court had recently ordered the government to distribute food grain free instead of letting it rot in godowns. Subsequently, the government decided to release an additional 2.5 million tonne of wheat and rice to states in the next six months from its stock.
“Earlier we believed in the trickle-down theory that if growth takes place, the effects would reach to base of the pyramid. Today, we don't believe it. We believe people must be empowered with legal enactments like the 100-day job scheme,” said Mukherjee. This fiscal, Mukherjee said he expects growth in the gross domestic product to be between 8.50 per cent and 8.75 per cent.
With reference to the statement that "we are monitoring the prices of 18 essential commodities on a daily basis", it is suggested that, for controlling inflation, the additional profits made by all firms, due to price variation (and not quantity variation) should not be allowed to be distributed, but be compulsorily deposited in a separate account. Inflation due to demand-pull can be partly prevented by taking this step. By hiking the repo rate, etc. the cost of goods sold would go up and therefore is not the correct medicine to control inflation. And this step is taken probably because: "We do not have definite ideas (of what is causing inflation)", as revealed by Chief Economic Advisor Kaushik Basu.
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