Rising inflation poses biggest threat to India’s growth path

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Mumbai - Indian Prime Minister Narendra Modi’s promises to revive the economy face a gathering threat from inflation, which is creeping up again due to oil prices, weak monsoon rains and hoarding, according to analysts.

Food inflation, one of the reasons voters resoundingly ejected the previous Congress government in elections in April and last month, is gathering pace with troublesome onion prices in the spotlight.

The new government announced measures last week to tackle the problem after winning the general election on a platform of good governance and jump-starting the economy, which is growing at its slowest pace in a decade.

“All efforts will be made to ensure there is no shortage of onion, potato and tomato anywhere in the country,” said Food Minister Ram Vilas Paswan yesterday, blaming hoarders for the problems.

He called on onion-producing states such as Maharashtra to ensure uninterrupted supplies of the staple vegetables to keep prices steady.

The day before, the government announced a minimum export price for onions of $300 (R3 174) a ton in a bid to prevent overseas sales and reduce prices in the local market.

Tackling hoarders – large traders who keep food in stock while waiting for prices to rise – has long been a priority for Indian governments, but with few results.

Analysts say the new attempts to slam a lid on prices are a good first step by the Modi government, although there are limits to how much the central government can do without state co-operation.

The Wholesale Price index, the most closely watched cost-of-living indicator, rose to 6.01 percent last month, driven by food and fuel prices – the highest figure since December and compared with 5.20 percent in April.

Other inflationary factors are beyond Modi’s control.

Global oil prices have been rising as worsening strife in Iraq triggers fears of supply disruptions – a key concern in India, which imports more than 80 percent of its crude oil needs.

India is one of the world’s top producers of rice, wheat and sugar but relies heavily on the south-west monsoon, which sweeps the sub-continent from June to September of every year to water the country’s crops.

Reserve Bank of India chief Raghuram Rajan, who has raised interest rates three times to tame consumer prices since coming to the helm last September, told reporters last week that combating inflation would continue to be the priority in the next few quarters.

Without the government’s help to tackle inflation, Rajan is unlikely to cut interest rates any time soon. – Sapa-AFP


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