Blaming demand-supply mismatch in foodgrains for the rise in inflation rate, Finance Minister P Chidambaram on Tuesday said the Government will carefully watch the situation and take appropriate monetary measures.

Replying to supplementaries during Question Hour in Rajya Sabha, he said there was a supply-demand mismatch in foodgrains, pulses and edible oil that was the primary cause of rise in inflation rate.

"Government will carefully watch the situation and take (appropriate) monetary measures," he said. But the flip side of monetary measures is rise in interest rates and the Government will have to do a balancing job, he said.

Chidambaram said production of wheat, rice and pulses in the country had stagnated over the past few years even as demand has risen. Besides, prices of wheat in the international market had risen by 88 per cent since April 2007 and by 15 per cent of rice.

Also the minimum support price (MSP) paid by government to farmers had also been increasing for past three years. All these had led to some pressure on prices, he said.

Reserve Bank of India [Get Quote] has stated that average inflation rate for the current fiscal would be in the range 4-4.5 per cent and efforts would be to contain it below 4.5 per cent. The efforts of the Government, however, are to keep it closer to 4 per cent, he said.

The Finance Minister said the Government over the short to medium term was aiming to reduce the supply-demand mismatch by raising foodgrain production by 10 million tons.

Chidambaram said international prices of crude oil, metals and edible oil were not in control of the government and as long as the nation was dependant on imports to meet its requirement it would not be insulated from global prices.

"Therefore to the extent we are dependant on imports, we are not insulated from world prices," he said. Increasing production and productivity would be the key, he added.

The September 2007 to January 2008 average rate of inflation based on Consumer Price Index in India was 5.7 per cent, while the same in US was 3.8 per cent, UK 2.1 per cent, European countries 2.8 per cent and Japan 0.4 per cent. China was the only country, which had a higher inflation rate of 6.6 per cent.