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Published on Gold Anti-Trust Action Committee (http://www.gata.org)

India warned of stagflation risk as price of food soars

By cpowell
Created 2010-07-25 22:28

By Ambrose Evans-Pritchard
The Telegraph, London
Sunday, July 25, 2010

http://www.telegraph.co.uk/finance/globalbusiness/7909557/India-warned-o... [1]

As David Cameron leads a giant delegation of British businessman to India, the tiger economy is facing the worst overheating crisis in a decade and may have to jam on the brakes.

A panel of Indian government advisers has called for immediate interest rate rises to prevent double-digit inflation spinning out of control. "Further tightening is required. Inflation is more than twice the comfort zone," the Economic Advisory Council said.

The central bank has been slow to act as India's inflation rises to 11 percent, the highest in the G20 group of countries. The benchmark interest rate is heavily negative in real terms at just 5.5 percent.

... Dispatch continues below ...



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Food prices have been soaring despite the release of grain stocks. This has led to led to harsh criticism from the Bharatiya Janata nationalists and the Communists.

"The incumbent elite in Delhi may be sitting on a dormant volcano if popular protests over rising food and fuel prices erupt," said commentator Paranjoy Guha Thakurta.

Mr Cameron, accompanied by the chief executives of some of Britain's biggest companies, is attempting to forge new economic ties with a leader of the emerging BRIC states.

India has been growing at 8pc to 9pc a year over much of the past decade, benefiting from free-market reforms after shaking off the socialist shackles of the old Hindu Model from the Nehru era. Growth has been slower than in China but still enough to power an industrial revolution. However, the country is already running into infrastructure limits.

Premier Manmohan Singh is drawing up plans for roads, ports, railways, and airports, with a spending spree on new power plants. Lack of electricity has become an acute problem, with daily power cuts.

Maya Bhandari from Lombard Street Research said New Delhi had been far behind the curve in tackling price pressures. The central and regional budgets are heavily in deficit and this is being "monetised" by central bank policy. The inflation rate for primary articles has reached 16 percent. "This is not far from British inflation just before the bitter stagflation years of the later 1970s," she said.

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Source URL:
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