Combating Inflation A Collective Responsibility Of Centre And State, Higher Inflation In States That Have Not Cut Fuel Taxes: FM

Combating inflation cannot be the sole responsibility of the Centre and states must play a critical part in bringing down prices, union finance minister Nirmala Sitharaman said on Thursday.

"Inflation that prevails in different parts of the country - despite the GST, creation of one market, removal of tolls and taxes, and freeing movement of goods - varies from state to state," the finance minister said at a conference on taming down the inflation, organised by the Indian Council for Research on International Economic Relations.

The FM made the case for inflation management being a collective responsibility of both the Centre and states specially in reference to prices of fuel.

The FM said that the inflation levels in some states continuing to remain higher than the national average remains a cause for concern. Those states haven't cut tax on fuel products and that makes inflation higher, she pointed out.

According to data released by the statistics ministry last month, Telangana, West Bengal and Sikkim faced the steepest spike in prices, with their combined retail inflation for rural and urban areas averaging 8.32%, 8.06%, and 8.01%, respectively.

Some of the other major States where inflation has stayed sharply elevated include Maharashtra and Haryana (7.7%), Madhya Pradesh (7.52%), Assam (7.37%), Uttar Pradesh (7.27%), Gujarat and J&K (7.2%), as well as Rajasthan (7.1%). Retail prices in States like Kerala (4.8%), Tamil Nadu (5.01%), Punjab (5.35%), Delhi (5.56%), and Karnataka (5.84%) have been rising at less than 6%.

The all-India headline retail inflation moderated to a five-month low of 6.71 percent in July.

"It cannot be that inflation is handled only by the Centre and when states don't take enough steps that part of India suffers for want of a relief from stress of inflation." the FM added.

"Just as today, there are a lot of discussions about devolution of taxable revenues... Similarly, there are, I would suggest, enough justifications to have this understanding of how states also manage their inflation. It cannot be that inflation is handled only by the Centre," the FM said.

The FM said that importing Russian oil was part of the country's inflation management strategy and that other countries were also doing something similar.

"I give credit to the statesmanship of the prime minister to make sure globally that we did keep up the relationship with all countries but yet managed to get the Russian fuel which is what Japan is doing today, which is what some other countries are doing." the FM added.

“I respect the PM for his courage to get it (crude oil) from Russia because they are willing to give on discount... our entire import had 2% of Russian component, it was ramped up to 12-13% within a couple of months," she said.

She said that Reserve Bank will have to be aligned with the fiscal policy and other factors in taming inflation.

Inflation management cannot be singularly left to the monetary policy, which has proved totally ineffective in many countries, she said.

"“The Reserve Bank will have to synchronise. It may not be synchronised as much as developed central banks. I am not prescribing anything to the Reserve Bank, I am not giving any forward direction to the central bank. But it is the truth – India’s solution to handling the economy, part of which is handling inflation also, is an exercise where the fiscal policy together with monetary policy has been at work." she said.

The FM said that monetary policy alone to manage inflation has proved totally ineffective in many countries.

“India’s inflation management…is an exercise of so many different activities, majority of which are outside of monetary policy even in today’s circumstances. There could have been a time when people would have thought it’s sacrilegious for a finance minister to say that,” she said.