FinMin considers fresh steps to curb inflation

Recognising the threat of hardening international non-fuel commodity prices on inflation, the department of economic affairs in the Union finance ministry has suggested aggressive sterilisation of foreign capital inflows, tightening of government expenditure and intervention in key farm produce markets like wheat.

Aggressive sterilisation could result in the Reserve Bank of India mopping up excess liquidity from the market under the market stabilisation scheme. It could also raise the cash reserve ratio.

In the last few months, the government has taken various fiscal and administrative measures to bring down prices. The RBI, on its part, has raised key rates to mop up excess liquidity from the market.

Still, inflation continues to rule at over 5.5 per cent, much above the 5 per cent target set by the central bank for 2007-08.

As a result, the government is now arming itself with new measures to contain inflation. The aforementioned steps were learnt to have been discussed by the Cabinet Committee on Prices here today. However, the finance ministry has urged that anti-inflation steps should not "unduly hurt" economic growth.

In the Lok Sabha today, Finance Minister P Chidambaram indicated that the government could take more steps such as reduction in customs duties to check rising prices. "I am not happy with inflation. We are willing to take further fiscal steps (to contain inflation) if members so suggest," he said.

The department has identified shortfall in stocks of wheat, pulses and edible oils, the hardening of international non-fuel commodity prices and strong demand resulting from rising per capita income as reasons for the rise in commodity prices.

It has suggested specific measures to deal with rising commodity prices, including calibrated and effective open market sales of wheat.

It has also called for building up adequate buffer stocks of wheat through vigorous public procurement including open tendering at consumption centres and imports.

"These steps will be critical to manage market sentiment and determine wheat prices in 2007-08," official sources added.