India’s rapid economic growth continues, but inflation is higher than expected. The government appears hard-pressed to contain price hikes, especially food prices. Experts believe that the Indian economy and Indian society are undergoing structural changes.

New Delhi (AsiaNews) – The Indian government is trying to fight inflation whilst holding steady on investments to develop the country’s economy at a quick pace. Finance Minister Pranab Mukherjee plans to raise funds on the bond market and last Sunday acknowledged that inflation would reach double digit levels over the next two years.

“India needs US$ 459- 500 billion investments by 2012 to yield to the shortage of infrastructure and a substantial part of it will come from the bond market. It is vital for India to develop a rupee-denominated long-term bond market,” Mukherjee said.

The government expects India’s gross domestic product to grow by 9 per cent annually over the next couple of years and break the double-digit barrier during the 12th Plan. However, “Growth is not mere statistical figure but it should mean more employment, more jobs, more opportunities,” Mukherjee pointed out.

Yet, a higher growth rate also means higher inflation, which is expected to top 10 per cent over the same couple of years, above and beyond the expected growth rate.

Recently released figures show that the wholesale price index rose 11 per cent in March year-on-year. In May, it rose “only” 10.16 per cent, said Kaushik Basu, chief economic advisor in the Finance Ministry, but final figures will be available only in two months time.

This is setting off alarm bells in New Delhi because inflation affects disproportionately food and basic necessities (sugar, meat, tea, metals, textiles and wood), making matters worse for the millions of Indians who live at the bottom of the social scale.

Last month, Prime Minister Manmohan Singh promised to rein inflation, and bring it down to 5-6 per cent by the end of the year. The latest food inflation rate, announced last week, was a record 16.74 per cent.

Overall though, the government is optimistic that the inflation rate would moderate soon after the rabi harvest, which is expected to be better than that of last year, badly affected by the weather.

The ultranationalist Bharatiya Janata Party has criticised the government for the spike in inflation, accusing it of pursuing an economic policy of rapid growth that is counterproductive for the less affluent groups who are more price-sensitive.

Experts are divided over the matter. Some argue that higher prices are caused by excessive public spending the government incurred to counter the potentially negative impact of the world’s financial crisis. Others believe instead that India’s economy is undergoing a structural change, with higher incomes, changing habits, more consumption, and a relative decline of agriculture. Whatever the case, all of them agree that the country’s fast-paced economic development will generate more inflation.

To offset the effects of inflation and stimulate consumption, the government subsidies a number of goods like petrol.  It has also removed import duties on edible oil, sugar and pulses. “Unfortunately,” as Finance Mukharjee noted, “international prices of these commodities are also very high.”

Hence, the government wants to streamline the distribution system and eliminate unnecessary price rises as well as provide subsidised wheat and rice to people living below the poverty line.

• india
• economy
• growth
• inflation
• structural
• change