Union Finance Minister Shri Pranab Mukherjee said that there is an urgent need to review the present system of monitoring wholesale and retail prices of the essential commodities. He said that he hope Inter-Ministerial Group (IMG) on inflation would consider and deliberate on this issue and come out with concrete implementable suggestions. The Finance Minister said that there is also a need to improve the manner in which the available information is put to use in designing and formulating the required policy responses. The Finance Minister said that in that context, perhaps there is a case for establishing standard operation procedures for addressing both sudden and anticipated price fluctuations.

The Finance Minister, Shri Pranab Mukherjee, was addressing the first meeting of the Inter-Ministerial Group (IMG) on inflation here today.

The Finance Minister Shri Mukherjee said that IMG’s mandate is to look at the whole range of inflation policy issues, from distribution of foodgrains and vegetables to macro policies connected to fiscal and monetary matters. He said that he looks forward to receiving the IMG’s advice on all these matters in future.

The IMG, set- up by the Prime Minister, and chaired by the Chief Economic Adviser, Dr. Kaushik Basu, has for its brief “to review the inflation situation and suggest corrective measures.”

At the first meeting, the Finance Minister Shri Mukherjee noted how, “inflation has re-emerged as a major concern in the past few months, particularly in emerging economies. He said that for us in India, the major pressure at present are emanating from prices of food and energy sectors.” He went on to point out, “The IMG’s mandate is to look at the whole range of inflation policy issues, from distribution of foodgrains and vegetables to macro policies connected to fiscal and monetary policies.” (The full text is attached).

The meeting was attended among others by Dr. Kaushik Basu, Chief Economic Adviser and Chairman of the IMG, Shri P.K. Basu, Secretary, Department of Agriculture & Cooperation – Member, Shri Rajiv Aggarwal, Secretary, Department of Consumer Affairs – Member, Shri B.C. Gupta, Secretary, Department of Food &Public Distribution – Member, Shri Rudra Gangadharan, Secretary, Department of Animal Husbandry & Dairying – Member, Dr. Ashok Sahu, Sr. Adviser, Planning Commission – Member and Shri. R.N. Dubey, Adviser, DEA – Member Secretary. The meeting was also attended by Dr. T.C. A. Anant, Chief Statistician and Secretary, Ministry of Statistics and Programme Implementation, Dr. Subir Gokaran, Deputy Governor, RBI, Shri Dhanendra Kumar, Chairman, Competition Commission of India as Special Invitees. Shri R Gopalan, Secretary, Department of Economic Affairs also briefly attended the meeting and made valuable suggestions.

The meeting took some important intial decisions on how information from various sectors of the Indian economy would be collated and systems developed for early warning systems. It was stressed in this meeting that we must move on from reacting to every episode of inflation and price spike with immediate policy responses, to using these episodes to study flaws that may be there in the system and to take advance corrective measures so that such spikes do not occur in the future. Issues like link between futures market and price rise, market margins, agricultural productivity issues and the role of State Governments and District administration in price management were also briefly touched upon.

The IMG will work now to set up an organizational structure and will hold regular meetings and put out briefing notes.

Union Finance Minister’s Opening Remarks
At IMG meeting on February 15, 2011

Colleagues,

At the outset let me welcome all the members of the Inter-Ministerial Group. This Group, with Dr. Kaushik Basu, Chief Economic Adviser as the Chairman, has been set up by the Prime Minister to review the overall inflation situation and suggest corrective measures. I am very happy to address the Group at its first meeting. I understand the Terms of Reference of the IMG are very wide and require concerted efforts and active cooperation from all the members of the Group.

2. Inflation has re-emerged as a major concern in the past few months, particularly in emerging economies. For us in India, the major pressure at present are emanating from prices of food and energy sectors. The risk of its spilling into the core sector requires constant monitoring, timely and proactive response.

3. After exhibiting a slow but steady decline in the current fiscal year, food inflation has been unexpectedly high in recent weeks-driven by surging prices of vegetables, fruits, dairy, oilseeds and spices. WPI inflation has been relatively stable for cereals (wheat, rice) and pulses. It is extremely important that we are able to stabilise food prices at a reasonable level.

4. In order to fully understand and respond to the inflation dynamics, it is vital that we have a good market intelligence system and a robust and timely data on prices. The introduction of the New Series of Wholesale Price Index (WPI) with 2004-05 as base year would address some of the concerns. Similarly the initiative on compilation of CPI Urban, CPI Rural and CPI combined for all States/UTs and at the national level by covering all sections of the urban and rural population is also an important step in improving inflation management in the country. These indices would reflect a more accurate picture of price behaviour of various goods and services consumed by the people.

5. There is a need to also review the present system of monitoring wholesale and retail prices of the essential commodities. I hope IMG would consider and deliberate on this issue and come out with concrete implementable suggestions. Ultimately, there is a need to improve the manner in which the available information is put to use in designing and formulating the required policy responses. In that context, perhaps there is a case for establishing standard operation procedures for addressing both sudden and anticipated price fluctuations.

6. The IMG’s mandate is to look at the whole range of inflation policy issues, from distribution of foodgrains and vegetables to macro policies connected to fiscal and monetary matters. I look forward to receiving the IMG’s advice on all these matters in future.

Let me conclude by wishing you all fruitful and result oriented deliberations in the coming months.