News / Asia

India Hikes Interest Rates to Control Rising Prices

India's opposition Bharatiya Janata Party (BJP) senior leader L.K. Advani, center, with party supporters march towards Indian parliament to protest against the price rise in New Delhi, India (File Photo)
India's opposition Bharatiya Janata Party (BJP) senior leader L.K. Advani, center, with party supporters march towards Indian parliament to protest against the price rise in New Delhi, India (File Photo)
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India has hiked interest rates for the sixth time this year, in a bid to tackle high inflation. One of the government's most challenging problem is to curb rising food prices.      

Just days ahead of India's main festival, Diwali, shoppers crowd a popular market in New Delhi.  They have come to buy traditional Indian sweets, nuts and other gifts which are customarily exchanged with friends and family.

But rising costs of these items have cast a dampener on the Hindu festival of lights. Shubha Gupta says prices are up substantially, compared to last year.

"Giving gifts is a problem.  I mean we have to make compromises," said Gupta.  "We are not going in for sweets and all, but we will go in for other things."

A huge hike in food prices has emerged as the toughest problem for the government to tackle, as India copes with persistently high inflation.  Although overall inflation is down to about eight and a half percent, food inflation is hovering around 15 percent.

Citing inflation as an overriding concern, the Central Bank Tuesday raised interest rates by a quarter percentage point.  It is the sixth time this year interest rates have been hiked in a bid to tame inflation.

The deputy secretary of the Planning Commission, Montek Singh Ahluwalia, says inflation continues to be an issue.   
"It is true that inflation is still at a range which is not comfortable, although, as we have been saying, it is going down," said Ahluwalia.

Policy makers say the rising interest rates will not disrupt the momentum of growth in the economy, which has recovered from the global financial crisis.

The return to growth of around eight and a half percent is providing some compensation for the middle classes.

Among them is Varsha Jain.  As she goes around the market, she admits that her budget is under strain.

But she says salaries have been increasing and, therefore, it is not surprising that shopkeepers have also raised food prices.

However, millions of poor people in the country, who are marginalized by the growing economy, are finding it particularly hard to cope with the higher food prices.

Tulsi Ram, who is selling flowers on a pavement outside a confectionery shop, says the rising prices have no impact to those who are earning well, but he will have to cut down his purchases for the festival. 

The government was hoping that good monsoon rains and an ample harvest would tame food prices.  But that has not happened.

Finance Minister Pranab Mukherjee said on Monday that the continued rise in the cost of living is a matter of concern. The government is hoping that the steps taken to control prices, such as raising interest rates, will bring down inflation to about six to seven percent, by March.

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