Kamal Narang

Strategy meet: The Finance Secretary, Dr D. Subbarao, along with the Joint Secretary, Capital Marketing Division, Dr K.P. Krishnan, at a National Seminar on Proposed Amendments to Securities Contracts Rules,1957, in the Capital on Saturday. –

Our Bureau

New Delhi, March 29 With inflation management gaining high priority, the top brass of the Finance Ministry, led by the Finance Minister, Mr P. Chidambaram, held a series of meetings in North Block to prepare a strategy for presentation before the Cabinet Committee on Prices, which is scheduled to meet on Monday. According to the latest official data, inflation had surged to a 13-month high of 6.68 per cent for the week ended March 15.

Describing the inflation numbers released on Friday as “quite disturbing”, the Finance Secretary, Dr D, Subbarao, on Saturday said that this was in part due to higher international commodity prices.

Just as US sub-prime crisis had impacted the country’s trade and capital market, he noted that the Indian economy was impacted through commodity prices also.

“We expect commodity prices to go down when there is a recession in developed countries. If you look at the past recessions in the US, whenever there was a recession, there was a depression in commodity prices. But, this time, there is an elevation of commodities prices together with a recession in the US,” Dr Subbarao said at a seminar on “Capital market reforms — Revisiting the SCR Rules,” organised by the Finance Ministry in association with the Institute of Company Secretaries of India (ICSI).

A sense of urgency has gripped the Government since inflation started its upward climb some weeks back, particularly because prices had risen the most in the case of cereals, vegetables, milk and edible oils. Fiscal measures such as reduction in import duties on edible oils have not yet yielded results in taming the inflationary pressures.

A monetary policy intervention, in the form of an interest rate hike, is now being contemplated as a policy option, but economists have commented on the likely ineffectiveness of this measure to control inflation. Most economists have pointed out that it was mostly supply side disruptions that had led to increase in prices of primary items and the problem needed to be addressed there.

Meanwhile, speaking about capital market reforms at the ICSI function, the Finance Secretary said that managing the capital market was a formidable challenge in a globalised environment.

He highlighted that the rise in global risk aversion in the recent months had tainted investor sentiment in India too. “The tremors felt on the stock exchanges of New York and London had travelled all the way to Dalal Street. Out of the 18 IPOs launched in 2008, 13 were trading at discount last week If this situation continues, it will be increasingly difficult for corporates to raise capital from the capital market,” he said.

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