PM blames 'grain for fuel' for high prices

NEW DELHI: Blaming the diversion of foodgrain for producing fuel and high crude oil prices for rising inflation in India, Prime Minister Manmohan Singh on Tuesday hoped a normal monsoon would salvage the situation.

"The world economy has not done enough to address the challenge of price rise," the prime minister told the national conference and annual session of the Confederation of Indian Industry (CII) here.

"The diversion of land from food crops to bio fuels, and the increasing use of available foodgrain and vegetable oil for the production of bio fuels, have contributed to the rise in food prices," he said.

His remarks were an obvious reference to reports that even though the global production of maize went up by 40 million tonnes last year, close to 30 million tonnes was used to produce ethanol, making the commodity sharply costlier.

"Normal monsoon should play its own helpful role," he said while addressing an audience that included the who's who of India Inc, besides diplomats and senior bureaucrats, and asked the industry to chip in to deal with the situation.

The prime minister's remarks came against the backdrop of US Secretary of State Condoleezza Rice's remark Monday that an improvement in the diets of Indian and Chinese people was the main reason for sky rocketing prices of grain worldwide.

"While bio-fuels continue to be an extremely important piece of the alternative energy picture, obviously, we want to make sure that it's not having an adverse effect," she told a conference of Peace Corps 2008 in Washington.

In India, policy makers in the government and at the central bank are concerned over spiralling prices that has pushed India's annual rate of inflation to a 40-month high at 7.33 percent for the week ended April 12.

The prime minister said inflation management was an immediate challenge. "This has consequences for growth, it has consequences for income distribution and it has consequences for your competitiveness."