FACE THE NATION | INFLATION FALLOUT
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Will fuel price cut stop inflation?
Published on Fri, Feb 16, 2007 at 12:12, Updated on Wed, Jun 20, 2007 at 15:13 in India section
Tags: Face The Nation, Fuel Price , New Delhi
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New Delhi: Prices are rising sharply in India and in a desperate attempt to control inflation, the Government has cut fuel prices.
Worried by surging inflation figures, the Government has announced a cut in petrol and diesel prices effective from Thursday midnight.
The petrol prices have been cut by Rs 2 per litre and diesel prices have been slashed by Re 1 per litre. The Petroleum Ministry has also sent a proposal asking for a cut in excise duties in petrol and diesel.
Latest figures of inflation show that it touched 6.73 per cent compared to 6.58 per cent a week ago.
However, there is some bad news too. Home loans are moving up and homes are going to cost more as ICICI and PNB have announced interest hikes and HDFC gets ready to review rates.
HDFC, one of the country’s biggest home loan disbursers, has also hinted at hiking home loan rates by half a per cent.
CRISIL Senior Economist D K Joshi spoke to Sagarika Ghose on CNN-IBN's Face The Nation on the inflation fallout.
On the impact of cut in fuel prices, Joshi said it will have marginally bring down inflation because they have a very little weight in Wholesale Price Index (WPI).
However, he said that fuel price reduction cannot be viewed in isolation.
"The Government is following a multi-pronged strategy towards inflation control. RBI is also tightening its monetary policy, essentially to slowdown the economy so that the demand side pressure on inflation is eliminated. The Finance Ministry has already reduced customs duty and have imposed some kind of ban on export of wheat and maze, so that domestic supply does not suffer," he said.
Giving reason for the rising prices of food items, Joshi said, “I think there are two sides to it. The fruits and vegetables are seasonal in nature and I think that will correct itself. But the more worrisome fact is the prices of pulses. The inflation in pulses has stayed very high for long time now, it’s not a recent phenomenon. So it reflects more structural problem in Indian agriculture. And similarly with food grains.”
"As global prices are also high, import will also not help much to bring domestic prices down. So, despite good foreign exchange reserve that option is not there," he added.
"There is a need to focus on agriculture. Reduction in customs duty will benefit in the medium run,” he said.
Joshi also said that earlier 8-9 per cent inflation was considered tolerable, but nowadays even a five per cent hike causes immediate panic.
He said that the Government must give incentives to farmers to grow more food crops and provide them with better irrigation facilities so as to increase agricultural productivity.
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