PM's informal team keeps close watch

The Nineties team that reined in the run-away inflation rate in 1991-92 and 1992-93 appears to be back in action.

Prime Minister Manmohan Singh has put in place an informal team of senior colleagues to monitor the current price situation daily. Singh is leading the deliberations within the team, which includes Finance Minister P Chidambaram, Reserve Bank of India (RBI) Governor YV Reddy and Planning Commission Deputy Chairman Montek Singh Ahluwalia.

Some of them are also members of the Cabinet Committee on Prices, which held its first meeting today. While the committee will take an overall view of the price situation, the Prime Minister's team will suggest specific policy measures for consideration of the government.

Inflation, based on the wholesale price index for the week ended July 31, has crossed 7.6 per cent. Preliminary assessments by Singh's team show that prices will remain hard for two-three weeks, before stabilising at a lower level as a result of the measures taken in the last couple of days.

Official sources said the Prime Minister held a two-hour meeting with Reddy on Tuesday to assess the price situation. Various policy options are understood to have come up for discussion at that meeting and during the Singh's subsequent meetings with Chidambaram and Ahluwalia.

The proposal to cut Customs and excise duties on petroleum products was also discussed by this team. A decision to go ahead with the duty cut was taken even though it was one of the "toughest" decisions the government has taken since its formation.

Though it has upset some refining companies, the government is firm on its decision. Keeping a tight leash on prices is being seen as a more important economic objective and a political imperative, particularly in view of the BJP's recent campaign against the government on rising prices.

Official sources declined to comment when asked if a tightening of the monetary policy to check inflation was being considered.

But the government's current assessment of the price situation seems to suggest that a tighter monetary policy will be considered only if the inflation rate is not brought under control in the next three weeks.

The government feels the current bout of inflation is being fuelled by rising international commodity prices, an erratic monsoon and inflationary expectations that had built up due to the lagged effect of the previous government's failure to tighten money supply.