Monday, November 29, 1999

Expose people to rising global commodity prices: Basu

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New Delhi, May 16 (PTI) Chief economic advisor Kaushik Basu has said that the spike in global prices of commodities, such as iron and crude, are likely to push up inflation, but the government should withhold itself from stepping in to keep domestic prices low. "The world raises the price of steel. What could you do? The government must expose people to the rising global commodity prices and cover only the vulnerable sections to prevent deficit from getting out of control," Basu told PTI in an interview. Noting that there is no other way of addressing the issue, Basu said that rising global prices of basic goods like iron ore, steel and crude may put pressure on overall inflation, which is ruling close to double digits at 9.59 per cent in April despite some moderation. "If international prices of certain commodities are rising and that is going to put pressure on the fiscal sector, you will have to allow the consumers to face the international prices. There is no choice," Basu said. He, however, said food inflation may decline in the near future, but global commodity prices may push up pressure on overall inflation. On the balance, overall inflation may still decline due to food prices coming down, Basu added. In April, Metal prices showed a surge and inflation got more generalised from being limited to food items only. Iron and steel prices rose 11.40 per cent in April compared to March and basic metal alloys and metal products turned expensive by 6.72 per cent. Fuel prices, however, rose just 0.61 per cent, since not all fuel prices are linked to global rates. Global oil prices started rising from March 2010 and even though it declined last week due to the debt crisis in Eurozone, it still ruled at 75 dollars a barrel. Speculations are rife in certain quarters, that crude prices may reach 100 barrels a dollar. "(Oil price is) very high compared to a few months ago when we were doing our budgetary calculations," the country''s chief economist pointed out. Similarly, iron ore prices climbed 80-90 per cent in Asian markets and 100 per cent in European markets in the first quarter of 2010. Also, world steel prices are firming up and have risen 9 per cent in the past one year. "I believe that the government should provide cover for the vulnerable section. But the mistake that we make is when international prices rise, we try to keep domestic price low for all our customers," he said.

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