India: Will fuel price cut stop inflation?

Prices are rising sharply in India and in a desperate attempt to control inflation, the Government has cut fuel prices.

Worried by surging inflation figures, the Government has announced a cut in petrol and diesel prices effective from Thursday midnight.
CRISIL Senior Economist D K Joshi spoke to Sagarika Ghose on CNN-IBN’s Face The Nation on the inflation fallout.

“The Government is following a multi-pronged strategy towards inflation control. RBI is also tightening its monetary policy, essentially to slowdown the economy so that the demand side pressure on inflation is eliminated. The Finance Ministry has already reduced customs duty and have imposed some kind of ban on export of wheat and maze, so that domestic supply does not suffer,” he said.

Giving reason for the rising prices of food items, Joshi said, “I think there are two sides to it. The fruits and vegetables are seasonal in nature and I think that will correct itself. But the more worrisome fact is the prices of pulses. The inflation in pulses has stayed very high for long time now, it’s not a recent phenomenon. So it reflects more structural problem in Indian agriculture. And similarly with food grains.”

“As global prices are also high, import will also not help much to bring domestic prices down. So, despite good foreign exchange reserve that option is not there,” he added.

“There is a need to focus on agriculture. Reduction in customs duty will benefit in the medium run,” he said.

IBN-Live