Finance Minister Pranab Mukherjee today said India is slowly reverting to pre-crisis growth level of nine per cent, but high inflation is pulling back the economic expansion.
The minister also praised civil society for being vigilant and judiciary for being independent, even as differences between the civil society and the government persisted over the ambit of the Lok Pal and Supreme Court snubbed the Centre on black money issue.
Speaking at an award function, Mukherjee highlighted the difficult choices before the government to control inflation, which stood at over nine per cent in May.
“If we increase administered prices of petroleum products and reduce fertiliser subsidy, we allow room for some inflation. If we do not then the consequent increase in the fiscal deficit will counter the moderating trend in aggregate demand and push inflation high anyhow,” he said.
Going forward, the finance minister said, there is still significant suppressed component of inflation as the increase in international crude oil prices has not been passed on completely, adding likelihood of global oil prices moderating significantly is low.
Also administered electricity prices have not gone up even as input prices, particularly those of coal, have increased significantly. Besides, there have been sharp increases in the prices of several important industrial raw materials, such as minerals, fibres, especially cotton, rubber, besides coal and crude oil.
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“In addition, there is also upward pressure on wages,” he said. Though the monsoon is expected to be normal this year, structural issues on protein based food items remain.
“There are also some concerns due to elevated global food prices,” he added.
He said domestic investment, saving rates, inflow of foreign capital are driving India’s economic growth. “(These drivers) post-2008 are gradually regaining their momentum. To some extent, this recovery is being held back by domestic inflation, which seems to have gained a foothold in the past two years,” he added.
On corruption, he said the first step to deal with corruption is administrative, legal and judicial processes of detecting the cases, proving in a court of law and meting out punishment due. He said, “This is an ongoing process and must and will go on with a vigilant civil society and the independent judicial system that we have.”
He also said the second aspect is to address the root causes of corruption, particularly in public service delivery by reforming the system itself.