Inflation a major setback for Indian economy: Finance Minister

Finance Minister Pranab Mukherjee has expressed concerns over elevated inflation and said, inflation poses a major challenge to the Indian economy and projected that the rate of inflation is going to be more than 6.5% for this year.  While addressing a meeting of India and American corporate leaders and policymakers, finance minister said, 'There are problems (with the Indian economy) and one of the major problems is inflation.” Finance Minister is on three day visit to United States leading a high-powered Indian delegation for the second Indian-US Economic and Financial Partnership discussions.

Emphasizing on India’s growth potential Pranab Mukherjee said 'We do not believe, in theory, one is to be dispensed for the other. Yes, we can have a moderate rate of inflation and at the same time, reasonable developed growth. The monetary and fiscal policy must move in tandem. In India, we are doing so. Therefore, in short term, I would like to emphasis that in India, the growth potential is there. The rate of saving and rate of investment is reasonably high. The various structural reforms which we have undertaken and which will come in course of time, will ensure that investment-friendly environment which can attract investment from various parts of the world” he added.

On the issue of quality and unwanted blips in economic data from time to time, finance minister said, 'Sometimes questions have been raised, particularly looking at a figure in a short campus of time. (For example) whether FII in the current financial year is slowing down. In every year, the first quarter's FII investment slows down, particularly the equity. But in the later part of the years, it makes up. This is not in one year, but year after year. Therefore, we need not be unnecessarily overly worried.'

Returning to inflation, Finance Minister said Inflation is an important constrain to India’s economic growth, which the government has to tackle. On the acceptable rate of inflation, finance minister said, 'To be very frank, what shall be acceptable and what can be a tolerable level of inflation is very difficult to define. But in our economy, we feel that if we can keep the inflationary pressure within 5 to 6%, it could be ideal, but we can live with 6 to 6.5%.'

The headline inflation surged to higher than expected at 9.06% in May from 8.66 % in April, recent hike in diesel and other petroleum products is also expected to push inflation further. On the inflation for current year finance minister said, “This year I do hope it will be a little more, not because of near supply constraints on the agricultural front, which was one of the major reasons for inflationary pressure of the previous and current year, which we have substantially addressed by taking appropriate measures.'

'But the international commodity prices, including food and fuel, is causing severe constraints,' Finance Minister said.  'The food prices have started coming down. We have taken steps very recently. And have reduced subsidy burden by adjusting the price of oil and also providing relief to the consumers by doing away with central taxes and appealing to provincial governments to reduce their taxes on petroleum and petroleum products. I do have hope that it will have some impact. But this is going to be a major problem and it would have its impact on the overall growth scenario,' Mukherjee said.