With inflation topping the government agenda, economists have told Finance Minister Pranab Mukherjee to focus on policies to boost agricultural productivity in the upcoming Budget for 2011-12.
Mukherjee met economists as part of the pre-Budget discussions. This was the fifth meeting in a series of pre-Budget discussions between the finance minister and various stakeholders.
Stimulating the manufacturing sector by maintaining the tax status quo, making the Budget a more efficient document with a greater focus on outcome budgeting, balancing the current account deficit were other important macroeconomic issues discussed by the economists.
Mukherjee told economists that rising prices of international crude and other commodities was a “reality” which the government was facing that might lead to higher inflationary expectations. Besides inflation, Mukherjee added, there had been a significant increase in foreign institutional investor inflows, even as there had been a moderation in foreign direct investment flows, making current account financing more difficult.
He said the challenge before the government and the monetary authority had been to support the recovery process without compromising on price stability. “The task has not been easy,” Mukherjee told economists.
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The finance minister, in his introductory speech, also said that with broad-based recovery, a calibrated exit of monetary policy was being implemented as part of the Budget. He further said the progress in reduction in fiscal deficit for the year 2010-11 was in line with the commitment made in the medium-term fiscal policy statement.
Economists told Mukherjee to focus on agriculture-related issues to deal with inflation, particularly in food items, and prevent the current spurt in prices from becoming broader based. They also suggested he allow some changes in the Agricultural Produce Market Committees Act to raise competition in the distribution system and facilitate cross-state border foodgrain movement.