Govt to fight inflation, except fuel

New Delhi: Prime Minister Manmohan Singh said on Tuesday the Government would do everything possible to keep inflation in check but there were limits to what it could do to insulate people from the effects of record high oil prices.

"I know each of our families is concerned about the prices of essential commodities," he said in a televised Independence Day address to the nation.

But Singh, the architect of India's economic reforms more than a decade ago, said there was a limit to how much the Government could subsidise petroleum products in the face of rising import costs.

"How much more can the Government treasury bear this burden?" Singh said. "At some point, this will affect our ability to spend on other important development programmes."

India imports 70 per cent of its crude oil needs and policy makers say high global oil prices are a concern for the economy.

Petrol and diesel prices were raised in June, easing a little of the pressure on refineries saddled with losses from rising crude prices.

"I must remind you that two years ago the international price of oil was just over $30 per barrel. Today it is close to $75," Singh said.

"Even though world oil prices have more than doubled, we have succeeded in insulating our consumers to a great extent."

The central bank expects wholesale price inflation to be in the 5.0-5.5 per cent range in the fiscal year to March 2007.

The Government and the central bank have taken steps to check inflationary expectations.

The Reserve Bank of India raised its benchmark reverse repo rate by 25 basis points to 6.0 per cent on July 25, its second increase in six weeks. Singh said the Indian economy had grown at around 8 per cent for the past three years, which was unprecedented.

The economy grew 8.4 per cent in the fiscal year to March 2006 and the central bank expects it to expand by 7.5-8.0 per cent in the current fiscal year.

"I sincerely believe that the most effective way to banish poverty is to generate growth, which in turn will create new opportunities for gainful employment," Singh said.