Inflation is an area of concern for the UPA government, said Finance Minister Pranab Mukherjee in an exclusive interview to CNBC-TV18. The headline inflation number hit double-digits in May driven by food prices and by increasing demand pressures.
"Inflation is an area of concern in India, particularly food inflation. That's why we have taken certain steps by improving the supply side management to reduce the adverse impact of adverse inflationary pressures. The challenge is to contain double-digit inflation." He aims to bring it down by half or little less than half of current levels.
A good monsoon, he stated, will help to moderate inflation from mid-July. "From the demand side, the Reserve Bank of India is watching the situation. In their last policy statement, they have mopped up some liquidity from the market by adjusting some crucial rates by 25 bps. They are keeping a watchful eye and when necessary will address their policies from the demand side. But a good monsoon will have a moderating influence over prices and maybe it will be felt from the middle of July."
The Finance Minister is not in favour of a complete rollback of stimulus as of now. "I have come to restore certain tax proposals which I provided at the time of the stimulus package. The entire thing I rolled back, but not the full package. I hope it will be possible in the next year. Another area where I have started working on is the fiscal deficit. To meet the crisis, I had to expand fiscal to 6.8%. I have reduced it down to 5.5% in the current year and will bring it down to 4.1% next year."
He is confident of India achieving over 8.5% growth in FY11 and sees no impact on capital inflows as the economic fundamentals are strong.
Mukherjee hopes to introduce tax reforms from the next fiscal year. "We are going for two major tax reforms, one in direct tax areas and another in the indirect tax area. As far as the direct tax area is concerned, it is within the domain of the central federal government, the India government alone can do it. I do hope that after receiving the comments and analysing it, it will be possible for us to introduce it from the the next fiscal year."
Speaking on the recent move to de-peg the yuan from the dollar, Mukherjee said India is happy over China's flexible policy on the yuan. "I welcome the announcement that they have made that they will accept a flexible attitude and it is a welcome development. China's yuan policy will not hit the Indian economy adversely."
The Minister, who is Washington, called for greater co-operation between India and the United States in insurance, health, education, among others.