Prices may rise further, warns Pranab

Grappling with a high rate of price rise, the government on Tuesday expressed concern that increasing prices of crude and other commodities in global markets could add to inflationary pressure in the country.

"The possibility of the global commodity inflation adding to domestic inflationary pressures cannot be ruled out," Finance Minister Pranab Mukherjee said at the 83rd Annual General Meeting of industry chamber Ficci in New Delhi.

Noting that the steady increase of international crude oil and other commodity prices is a reality, the minister said, "We are already confronting (the situation)".

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He made these comments a day after presentation of Budget proposals for 2011-12 that seek to raise the economic growth rate to about 9 per cent from 8.6 per cent in the current fiscal.

Crude oil prices in the international market are ruling above $100 a barrel and with the crisis worsening in Libya and other Middle East countries, they may go up further.

Although food inflation declined from 20.2 per cent in February, 2010, to 9.3 per cent in January, 2011, it still remains a concern for the government.

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Headline inflation in January, at 8.23 per cent, is above the comfort level of around 5-6 per cent.

The challenge before the government and the monetary authority (RBI), Mukherjee said, has been to support the recovery process without compromising stability. "The task has not been easy, but we are making progress," he added.

With a view to control inflation, the RBI has increased key policy rates seven times since March, 2010.

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The finance minister said there is a need to improve the supply response of agriculture to expanding domestic demand and significantly enhance investment in the sector by the private and public sector.

He further said that as government spending comes down as a part of the fiscal consolidation process, India needs to effect adjustments in the composition of growth on the demand and supply side.

"We have to ensure that the revival in private investment is sustained and goes back close to pre-crisis growth rates. This required a stronger fiscal consolidation to enlarge the resource space for private enterprises," he said.

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He further said that India's growth story is comforting, but there are several challenges that the economy faces in the external and domestic context.

He said the global recovery is fragile, with advanced economies exhibiting a large fiscal deficit, high public debt and unemployment, and there is a danger of the sovereign crisis in some euro zone countries spilling over to other financial markets.