Government's priority is to tame inflation: FinMin Nirmala Sitharaman amid rising prices

New Delhi, Aug 26: Union finance minister Nirmala Sitharaman on Friday said the government’s priority is to "tame inflation" to ensure sustained economic growth and said hiking interest rates is not the only option to tackle price rise. The Finance Minister was addressing the B20 Summit India, being hosted by the Confederation of Indian Industry (CII).

 

 

The key priority for economic growth "is taming inflation because persistently high inflation will weaken demand", she said

 

Retail inflation soared to a 15-month high of 7.44 per cent in July, mainly on account of spiralling prices of tomatoes and vegetables. “Equally, elevated interest rates for considerable time can come in the way of economic recovery,” the finance minister added.

 

She said the tendency to use interest rates as the only solution to deal with inflation has its own downside.

 

"Obsession to use interest rates as the only tool to deal with inflation and not manage the supply side factors will not give a complete solution," Sitharaman said.

 

"And most economies do have this problem, because I think, for want of a better word, obsession with using interest rate as the only tool to deal with inflation. Temporarily it can give but sooner the supply side issues can creep the ugly heads up," she said.

 

Most of the central banks, including the Reserve Bank of India (RBI), have raised interest rates to tackle inflation following the outbreak of the Russia-Ukraine war in February last year that has also disrupted global supply chains.

 

“Task for the central banks therefore... particularly in today’s context is to keep in mind growth and growth-related priorities even as equally looking at controlling inflation,” Sitharaman said.

 

 

The finance minister said that the GDP numbers for the first quarter, which will be released this month, "should be good". On growth, she said that India has been able to accelerate the pace of economic reforms and the first quarter GDP numbers "should be good."

 

The National Statistical Office is scheduled to release the GDP numbers for the first quarter on August 31.

 

Sitharaman said that "green shoots" of private capital expenditure can be felt on back of the government's push for capital expenditure in the budget.

 

 

The minister said that India's free trade agreement with UK will be finalised soon and that talks are on for a similar pact with Canada in the future.