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CII - Do not sacrifice growth over price stability
Apr '08
Confederation of Indian Industry (CII) expresses its concern over the increase in WPI inflation and opines that current inflation has been a supply side driven phenomenon which needs to be dealt with cautiously so as to not sacrifice growth over price stability.

While CII appreciates the tight position of RBI in dealing with Growth versus Stability, any monetary measures that are aimed at controlling inflation should be judiciously employed so as to not sacrifice growth.

CII notes that the economy is currently facing twin problems of an emerging slowdown and moderately high rate of inflation especially in food grains, basic metals, metals and metal products.

The Index of Industrial Production (IIP) has moderated during the first 11 months of the current fiscal year and the IIP is expected to further decline in terms of growth to end the year with lower growth of industrial production.

In this scenario, CII submits that the signalling of RBI on its stance on the monetary policy measures would be of pivotal importance. While there are three options for RBI in terms of signalling, namely,

1.Increase interest rate and indicate that inflation is out of control and growth can be sacrificed to control inflation.

2.Maintain status quo and allow the fiscal measures to contain inflation, while signalling that it has the economy under control, and this would also help manage inflationary expectations.

3.Reduce interest rate and indicate that it is pro-growth even in a situation of moderately high inflation. This stance must be backed by fiscal measures.

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