04/11/2008, 00.00
INDIA
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Indians face record inflation as a result of runaway food prices

The Indian government tries to keep a lid on prices without harming economic growth. Import taxes on food are scrapped and rice and pulses exports are banned, but the problem is world-wide.

New Delhi (AsiaNews/Agencies) – Inflation has reached record levels in India as a result of rising food prices. Wholesale prices rose 7.41 per cent in the week ending 29 March over a year before, the highest rise in more than three years, the Ministry of Commerce and Industry said in New Delhi today, but the jump was even greater for food.

The situation has put the Indian government in a quandary because it has to contain inflation to protect consumers’ purchasing power whilst at the same time favour the development of the service sector and industry.

Experts do not expect the central bank to raise the cash reserve ratio, which has already been done five times since December 2006, for fear of its impact on development. Instead the government might control prices of steel and cement, essential for further growth.

The central bank plans to sell 230 billion rupees (US$ 5.8 billion) of bonds and bills this week, including 90 billion rupees of securities to drain excess money from the banking system.

Fears of inflations have prompted the government to scrap import tax on edible oils and maize as well and ban exports of (non-basmati) rice (basic staple for 65 per cent of the population) and pulses.

But any action seems more and more difficult because the problem is increasingly world-wide. Whatever is done experts expect the price of rice and cereals to rise, partly because Asian government have favoured industrial and service sector development at the expense of agriculture.

The impact is visible to all. In New Delhi for instance the cost of rice jumped 33 per cent (from 12 rupees or 29 US cents a kilo to 16 rupees or 39 cents) in the last two months.

“A steep rise in food prices will make inflation control more difficult,” Prime Minister Manmohan Singh said yesterday. “In most developing countries, food prices are the kingpin of the price structure.” (PB)

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