Economic expansion and high fiscal deficit are together leading to unstable price regime and the government needs to revert to fiscal consolidation to control the situation, Finance Minister Pranab Mukherjee said on Saturday.
"Economic expansion leads to fiscal deficit. It is leading to the problem of unstable price regime," Mukherjee told the 9th Pravasi Bharatiya Divas in New Delhi, as India's annual food inflation climbed to a 52-week high at 18.32 percent, reports IANS.
The minister said the sharp rise in global commodity prices was complicating the problem further in the domestic market and assured that every step will be taken to tame this spike.
"It is a big problem. We will have to come to the path of fiscal consolidation. We have to take all necessary measures to bring the inflation to a moderate level," Mukherjee said, adding a 3 percent growth gives a $41 billion-plus stimulus to the economy.
"High economic growth has its own reaction. It is resulting in a huge fiscal expansion and that is creating the problem of price rise," he said, and predicted a 9-10 percent annual growth soon on the back of prudent policy. According to him "Strong fundamentals, prudent policy and calibrated reforms have helped to bring the growth pre-crisis level.
However Prime Minister Manmohan Singh was optimistic and said the Indian economy would record 8.5 per cent growth during the current fiscal and is expected to grow at the rate of 9 to 10 per cent from the next financial year despite the "uncertain" global scenario.
Addressing the same conference he said high growth rate was vital to fund ambitious social development schemes. "Despite the uncertain global economic scenario, I am happy that our economic recovery is progressing well," Singh told the congregation of about 1,500 members of the Indian diasporas who have converged here from across the world for the three-day annual event. "In the last two quarters, our growth rate has been 8.9 per cent and we expect that for the entire year, it will be around 8.