India PM vows to tackle inflation as food prices climb
NEW DELHI (Reuters) - Indian Prime Minister Manmohan Singh vowed on Thursday to control inflation, a problem that has sparked street protests this week and added pressure on the government already under fire over corruption scandals.
Food inflation in India is among the highest in Asia, and it accelerated slightly in the middle of February despite policymakers' projections that prices would ease to single digits.
Singh said inflation in the last 18 months has become a problem and suggested that the government could introduce measures including revamping India's archaic public distribution system -- often seen as supply side bottlenecks contributing to inflation -- in the budget to be announced next week.
Some economists fear that policies to protect consumers from high inflation such as fuel and food subsidies and a food security bill will derail government plans to keep the budget deficit under 4.8 percent of gross domestic product in the next fiscal year that starts on April 1.
"Our government stands committed to control inflation," Singh told parliament, adding that he would bring a food security bill to parliament soon. "The government's function is to ensure that we control inflation but in a manner which we do not hurt the growth of employment opportunities."
"The only way we can control inflation is through increased production and increased productivity of agriculture."
India's food index rose 11.49 percent in the week ending February 12. The fuel price index climbed 12.14 percent in the year to February12, higher than the previous week's 11.92 percent, government data showed on Thursday.
Singh said headline inflation would ease to 7 percent by end-March, from 8.23 percent in January.
Overall headline inflation remained stubbornly high at more than 8 percent in January despite seven rate hikes by the central bank since March, with more tightening expected at the bank's mid-quarter policy review in mid-March.
PROTESTS AND VOTER ANGER
Finance Minister Pranab Mukherjee is expected to announce a populist budget on Monday ahead of a series of state elections that are seen as key test of support ahead of a 2014 general election.
On Wednesday, at least 100,000 trade unionists, including those from Singh's Congress party, marched in the Indian capital to protest high inflation.
Police in New Delhi on Thursday fought back with batons, water-cannons and tear gas hundreds of members of the main opposition Bharatiya Janata Party, who were protesting against corruption and high food prices.
Singh said that the government was committed to bring in a law to offer cheap grains to the poor, a scheme seen taking off the edge of voter anger and improving the electoral chances of Congress in several key state polls this year.
(Additional reporting by Abhijit Neogy and Krittivas Mukherjee, Editing by Alistair Scrutton and Yoko Nishikawa)