High economic growth in India and resultant inflow of funds into the country are putting pressure on the rupee, besides posing a risk of increase in inflation, finance minister P Chidambaram has said. “Strong economic performance in the framework of an open economy has thrown up its own challenges. We face the challenge of abundant international capital flows and their impact on the domestic economy, particularly on prices and the exchange rate,” Chidambaram said at Norwegian School of Management.The economy grew at 9.4 per cent during the last fiscal and 9.3 per cent in the first quarter this year, encouraging foreign funds to infuse over Rs 12,500 crore in the stock markets in the year so far. The rupee has appreciated by over 12 per cent against the dollar since January. Inflation had crossed six per cent level during the year, but was ruling at a 5-year low of 3.07 per cent for the week ended October 6. According to the RBI, risks remain to potential inflation.Delivering the speech titled Road travelled and the way forward, Chidambaram said that on the demand side, higher growth in foreign reserves — which were estimated at over $239 billion at the end of last month — and robust credit growth have exerted pressure on prices. “From time to time, we are faced with a mismatch between supply and demand in the case of primary commodities, including food articles,” Chidambaram said.The central bank has played its part in containing demand side pressure on prices and the government has responded to such developments by moving further on the path of economic openness by increasing access to the external markets.There are indications that on the agriculture front some of the supply side constraints may be eased in the current year, Chidambaram said. On the whole, despite occasional spurt in prices, growth has come about with modest inflation, he added. Chidambaram further said that although the country has been witnessing robust economic growth, it has to deal with numerous, almost formidable challenges. India ranks low at 126th position in the world according to the Human Development Report, 2006, he pointed out. “Many of the Millennium Development Goals appear, at present, just beyond our reach by the year 2015,” the finance minister said.
