On the eve of busy season Credit Policy, Finance Minister P Chidambaram on Monday said the government and the Reserve Bank will take necessary steps to keep inflation moderate and foster growth in the economy.
"We will continue to watch the price line. If necessary, we will take monetary and fiscal steps (to rein in inflation). Let's see what RBI does tomorrow. Then we will take fiscal steps, if necessary," Chidambaram said on the sidelines of a award ceremony of UNDP and Rajiv Gandhi Foundation in New Delhi.
He said the government and RBI expect inflation to be around 5 per cent despite the rise in domestic fuel prices and its "pass through" impact on prices of other commodities.
"As I have said earlier, there is bound to be some impact of fuel price hike on inflation, so, price rise was inevitable. I think the fuel pass through impact is over," the minister said.
Inflation has moved up to 4.62 per cent for the week ended October 8 from 4.24 per cent a week ago, mainly due to hike in prices of essential food items and manufactured products.
Unfazed by rise in wholesale prices, Chidambaram said in a developing economy like India, there is bound to be some inflation. But it was for the government and RBI to keep it moderate and ensure that the growth momentum was hampered.
With a moderate inflation, Chidambaram saw no pressure on interest rates as well. "Bankers told me that the interest rates will remain stable in short to medium term," he said.
Till date, both government and RBI expect GDP to grow by 7 per cent this fiscal with a moderate 5-5.5 per cent inflation and stable interest rates.
The economy had clocked a robust 8.1 per cent growth in the first quarter of 2005-06, raising hopes of a better show this year compared to 6.9 per cent of last fiscal.
Speaking at the function, Chidambaram emphasised on growth with equity to reduce poverty. "With growth there is a chance of equity. Without growth, there is no chance."
"Growth is an imperative," he said adding that equity was a political choice.
"Ultimately, a programme with an eye on outcomes can uplift the poor," he said.
On the borrowing front, he said the government is slated to announce another auction of bonds shortly.
The last auction of bonds worth Rs 4,000 crore (Rs 40 billion) was cancelled by the RBI. "We cancelled that auction because we thought it was not the correct price," Chidambaram said.
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