High inflation 'politically sensitive' warns IMF

Describing the soaring inflation in India as "a politically hot issue", the International Monetary Fund (IMF) today asked the Indian government to take immediate steps to control prices before the problem becomes entrenched and spills over.

Referring to recent IMF reports on global and regional economy which said inflation was on the higher side and required immediate attention, senior advisor in the IMF Asia and Pacific Department Kalpana Kochhar said: "At 7.5 per cent (inflation rate in India), may not seem very high, but politically it is a hot issue."

She added: "It was mainly due to food, fuel and some metals. Activities have come off a fast pace but are still pretty strong."

The inflation rate in India which was below 4 per cent in January soared to 7.41 per cent towards the end of March and is expected to move up further before coming down. Rising prices forced the government to take a host of steps, including banning export of non-basmati rice, pulses, edible oil and cement.

The issue has already taken a political tinge in the country with the opposition Bharatiya Janata Party and the Left parties putting the government in the dock. Referring to economic performance, Kochhar said: "Fiscal situation remains an issue... Some progress has been made but much more needs to be done".

There is hardly anything to derail the economic progress of India as the underlying fundamentals of growth would not come off even if managing bumps along the way turns out to be challenging, Kochhar said.

"To my mind, it is hard to see something that is significantly going to derail the progress. There are going to be bumps along the road and managing those bumps are going to be quite challenging," she said.