Two years after the UPA government took over, the politically sensitive I-word, inflation, is back to haunt it again.Prime Minister Manmohan Singh, concerned about the rising price of everyday goods, is expected to announce a slew of measures tomorrow after a meeting of the Cabinet Committee on Prices.Ashok Lahiri, chief economic adviser to the Union Finance Minister P Chidambaram was working late through this evening preparing a note on fiscal measures that could be taken up for consideration.Singh had earlier asked the chairman of his economic advisory council Dr C Rangarajan to prepare a detailed note on the reasons behind the spiraling prices.When the UPA government came to power, it inherited a runaway inflation rate that peaked at eight per cent in 2004. The government had tightened monetary policy and lowered import duties on some commodities.Soaring iron and steel prices, that were the main drivers of inflation at the time, were reined in by lowering import duties to 5 per cent despite protests from the domestic industry.This time around, with prices of food items like vegetables and pulses going through the roof, the government has already allowed import of foodgrains like wheat and pulses.“It’s not that prices of all items are rising,” a member of the PM’s economic advisory council told The Indian Express. “Some prices are rising and anything that can be done. will be considered.”Though the agriculture ministry is opposed to the idea, the PMO is keen to use India’s burgeoning foreign exchange reserves at such times to allow imports of foodgrains and vegetables.Reports of depleting reserves in the Food Corporation of India godowns and some large private companies possibly hoarding stocks, have added urgency to the need for the PM’s intervention.“The first step would be to curb inflationary expectations that are driving inflation as prices are marked up in anticipation of a price rise,” the EAC member said. By importing commodities whose prices are rising, the government will be sending a clear deterrent signal to traders who are speculating on prices ahead of the monsoon.Stricter vigilance to curb hoarding could be another tool that the government may choose to wield, the member pointed out. At the same time, to allay the agriculture ministry’s reservations on imports, quota-based barriers can be used to limit imports. “Since October 2004, the Reserve Bank of India has been hiking rates and warning of inflation in justification of its tighter monetary policy. This has had an effect, but more could be done. The trick is to curb inflation while not restricting growth,” the EAC member said.
