Centre And States Both Together Need To Find Ways To Manage Inflation: FM Sitharaman

Finance minister Nirmala Sitharaman said that it’s important that states and Centre together handle inflationary pressure.

“Now if, states' inflation is also to be attributed to the government of India, we need to have a way in which we work together to handle inflationary matters,” Sitharaman said in a seminar on Taming Inflation, organised by Indian Council for Research on International Economic Relations (ICRIER).

She said that there have been a lot of discussions about devolution of taxable revenues and similarly, there are enough justifications to have an understanding of how states also manage their inflation.

“It cannot be that inflation is handled only by the Centre. And when states don't take enough steps, that part of India suffers from want of a relief from the stress of inflation. The exogenous factors affect both the Centre and states,” Sitharaman said.

Despite the Goods and Services Tax (GST) and creation of one market, removal of tolls and taxes, and freeing movement of goods, inflation prevails in different parts of the country varies from state to state.

She also said that when global fuel prices went up, wherever possible the central government twice reduced the price of petrol and products.

“Now, very recently, widely available information in the public domain shows how inflation has varied from state to state. There could be several reasons for it....But the fact remains, coincidentally, I find inflation being higher than the national level inflation in states that have not reduced fuel prices,” Sitharaman said.

She said that this established the fact that movement of foodgrains and food related items actually had a bearing on the price of such items, which constitute a bulk of the CPI.

Sitharaman said India's solution to handling the economy, part of which is handling inflation also, is an exercise where the fiscal policy together with monetary policy has been at work.

“It can't be singularly left to monetary policy, which has proved totally ineffective in many countries. And these are countries whose structures form the basis for monetary policy theory, that interest rates is the potent tool to manage inflation,” Sitharaman said.

India's inflation management, she said, is an exercise of many different activities, majority of which are outside of monetary policy even in today's circumstances.

She said that India's experience in handling inflation depends on many different factors. “The central bank, it's instruments, it's interest rate management form a very critical part of it, but it cannot be the one and only one,” she said.

Sitharaman said that India’s decision to import Russian crude was part of inflation management. “In a situation where global prices were going beyond anyone's affordability, at that stage to take a very strong political decision, I respect the Prime Minister for his courage on this to get it from Russia because they are ready to give it to you at discount,” Sitharaman said.

She said Russian component in India’s entire crude import basket was probably 2 per cent and at times even lesser, but that was ramped up to almost 12-13 per cent within a couple of months.

“Yes, we have cut it down somewhat but can it be further strengthened and the burden on the Indian exchequer to import that much more at that much more price, can it be handled with a lot more sense of prudence. Will there be political implications on it?”

She said that Prime Minister Narendra Modi made sure that India managed to globally keep its relationships with all countries, yet managed to get the Russian crude.

“Which is what Japan is doing today, which is probably what Italy and some other countries are also doing. So wherever there are sanctions, but countries are finding their own way to get Russian crude, Russian gas. That also is a part of inflation management,” Sitharaman said.