Enforce SCCM, contain food inflation, hike essential products supplies: ASSOCHAM

The prices of primary food articles are going extremely high with annual inflation for food items, currently at decade high of 15% while the headline retail inflation as measured by three consumer price indices is at around 12% each

Sep 23, 2009 11:09 IST India Infoline News Service

At a time when food prices are skyrocketing and making a serious dent in wage earners purchasing power, The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has urged Reserve Bank of India (RBI) to enforce Selective Credit Control Measures (SCCM) to restrict hoarding, tame food inflation and ensure adequate supplies of essential commodities in markets.

Under section 21 of Banking Regulation Act, the RBI is empowered to exercise SCCM but somehow it has reservations and apprehensions that invoking such directives can subject the apex bank to unjustified criticism from vested interests belonging to trading and hoarding lobbies.

According to ASSOCHAM, the prices of primary food articles are going extremely high with annual inflation for food items, currently at decade high of 15% while the headline retail inflation as measured by  three consumer price indices is at around 12% each.

These factors have put extreme pressures on supplies of essential commodities and food articles as also encouraged hoarding among traders throughout the country. This needs to be urgently addressed in the interest of common masses and the Chamber strongly feels that the RBI should come forward to take a bold policy decision so that public funds are not used unreasonably for hoarding essential supplies.

Therefore, there is strong case to implement stipulations of SCCM without any further delay as the consumer price index is already in double digit. The ASSOCHAM has also cautioned the apex bank to immediately take centre into confidence if in case it needs any direction from policy makers in this regard.

Otherwise the approaching festive season coupled with adverse impact of failed monsoon will offer sufficient opportunities for hoarders to take full advantage of prevailing situation to further constraint supplies and escalate severe inflationary pressures, said the President ASSOCHAM, Sajjan Jindal.

According to ASSOCHAM, the inflation control measures of RBI could include an increase in minimum margins for lending against select commodities, currently close to 25% and ceiling on levels of credit and increasing the interest rates to discourage speculative hoarding and thereby alleviate the pressures on prices.

As per the ASSOCHAM, so far whatever steps, initiated by the government in consultation with the RBI to augment supplies of essential articles in the market and contain price rise have yielded lukewarm results even with assurances for imports. Therefore to supplement its efforts for making available adequate and orderly supplies, ASSOCHAM is of the strong view that selective credit control measures be enforced immediately by the RBI.

With credit off-take yet to  pick up and economy take longer to be back on higher growth trajectory, a case for hike in key policy rate is ruled out for the time being. But inflation is soaring in certain segments, more particularly food items for which, government and RBI is seriously concerned.

Therefore the SCCM if enforced will be effective in taming inflation in certain sectors and also not hurt investments for faster economic recovery, said Jindal. The annual rate of inflation is at 0.12% for the week ended September 5, 2009, ending the 13 week decline in the whole sale price index (WPI) as prices of food articles showed no signs of abating.

Inflationary pressures are beginning to built up with retail inflation already in double digits. With the comfort of negative inflation for the most widely watched WPI also gone, the ASSOCHAM  feels that RBI may take steps to suck out access liquidity from the system and even resort to sector specific measures to tame food price inflation and to ensure credit flow to some key sectors.


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