'Let the rupee appreciate to check inflation'

MUMBAI: Industry body the Associated Chambers of Commerce and Industry of India (ASSOCHAM) has said in order to check inflation, the Centre should let the rupee appreciate.

In a study on inflation in India, released by the Assocham President Venugopal Dhoot here today, Assocham said the appreciation in rupee will encourage more imports and discourage exports.

"This short term measure can have immense potential to rein in the price rise, as has been exhibited by the previous year's experience," Assocham said.

Among other measures suggested by the chamber include the introduction of dual pricing policy and having a flexible procurement price, rather than procuring the essential commodities at Minimum Support Price (MSP).

"The sooner the government adopts a dual policy by differentiating between MSP and the procurement price, the better it will be for market stability," the chamber said.

For the long term, the government should opt for starting second green revolution which will be based on "knowledge agriculture" to step up the agri production in the country, Dhoot said.

There is a critical need to invest more in rural infrastructure and promote more public investment in agriculture to reduce demand-supply gap.

Dhoot said that the current high rate of inflation is due to sharp rise in international prices of crude oil and the farm products, forex inflows into the country and stagnation in the country's foodgrain production.

"Internationally, the real prices have reached the highest since the mid 1970s," he said.

Quoting the food price index calculated by Food and Agriculture Organisation of the United Nations, Dhoot said the prices rose by 40 per cent during 2007 as compared to nine per cent the year before.

Rice was up 227 per cent, wheat by 293 per cent, repeseed oil by 129 per cent, he said.

While, crude palm oil prices have gone up by 104 per cent, soya bean oil by 111 per cent and crude sunflower oil by 155 per cent.

Assocham said, the most critical demand side factor is population growth.

"While the population has grown 1.9 per cent annually, foodgrains production has failed to match it. The per capita availability of cereals and pulses have declined between 1990 and 2007," the industry body added.

Besides, of late with rate of employment on the rise and income levels rising, a certain section of poor people, who were earlier consuming jowar have started consuming wheat which has resulted in more demand for wheat, Dhoot said.

There is a critical need to invest more in rural infrastructure and promote more public investment in agriculture to reduce demand-supply gap, the chamber said.

It has also argued that there is no case to ban futures trading as there is no indication of futures trading causing inflation in the economy.