Manufacturers must curtail prices, says Finance Minister

HONG KONG: Finance minister Palaniappan Chidambaram asked manufacturing industry to help the government contain inflation, saying they must not hike prices just because demand is high.

“Any (inflation) number beyond 5% causes discomfort. If core inflation gets entrenched, you are inviting the government to act in a certain manner. The industry has boomed because of a soft interest rate regime,” he said.

He was in Hong Kong on Wednesday to address the 10th Asian Investment Conference organised by Credit Suisse and also to inaugurate a branch of Canara Bank.

Chidambaram said economic growth will stay at 9% or more and that only a prolonged drought could derail the expansion. “I’m confident and determined that growth will remain 9% or above for the next five to 10 years,’’ he said.

Excerpts from a quick interview with DNA Money after the Canara Bank inaugural:

Will we see a further tightening of the monetary policy going ahead?

I can’t comment on monetary policy. That is a function of the Reserve Bank of India (RBI). We have made it very clear to the RBI that whatever monetary steps have to be taken to moderate inflation without affecting growth, the RBI should take those steps. The government will fully support the RBI.

Is there an acceptable level of inflation?

There’s no such thing as an acceptable level of inflation from anyone’s point of view. But the tolerance level in the polity…If inflation is between 4 and 4.5%, there is a tolerance to inflation. Anything beyond 5% people are getting a little impatient and unhappy.

What will be the direction of rates over the next few months?

It depends on how the wheat crop turns out. The harvesting begins on April 1. Sugar was very good. We hope wheat is also good. (It) also depends on how the pulse production turns out. If these two are abundant, there will be moderation in primary articles inflation.

As far as manufactured articles are concerned, we have appealed to the industry to be very careful not to push up prices simply because demand is high.

Will we see more administrative measures as in the case of cement?

We have not taken any measures. In the case of cement it was only a tax incentive (a sale price below Rs 190 attracts an excise duty of Rs 350 per tonne, anything above attracts an excise of Rs 600 per tonne). There would be an incentive if manufacturers kept their prices low… It was not a price control order.

Will we see more of those?

Not necessarily. Why should we? The only sector where the prices rose rather sharply was cement. Therefore we adopted a well-established method of giving a tax incentive.