“Government will not hesitate to take further fiscal measures to check inflation,” Finance Minister P Chidambaram told the Rajya Sabha while replying to debate on the Appropriation Bill 2007.
Expressing concern over rise in prices of essential commodities especially food articles and vegetables he said with enhancement of supply of these commodities through higher agricultural production, the rise in prices could be halted. Mr Chidambaram explained that the prices of essential commodities and food articles had been rising because of stagnation in agricultural production.
Significantly, he expressed concern over the ongoing rise in international crude oil prices, which could have adverse effect on average price line. “The government has control over the international crude oil prices,” he said. Mr Chidambaram has been maintaining the stand that the government would try to keep inflation rate close to four per cent. The inflation, which in the recent months had been hovering above six per cent, climbed down below five per cent in the early last month.
Because of high inflation rate, the Reserve Bank of India (RBI) had resorted to tighter monetary policy to reduce the money supply to rein in inflation. The tight monetary policy had led to hardening of interest rate thereby making the popular housing loan and personal loan costlier.
The RBI has stated that the inflation should remain within the tolerable limit of 4 to 4.5 per cent so that the apex bank was not coerced to further tighten the monetary policy.