The Parliamentary Standing Committee on finance has said the growing inflation will frustrate the achievements made by the decade old reform process and the government should tackle the menace tactfully.
It has also directed the government to ensure that adequate savings instruments are available to the elderly, who are hit the hardest by inflation.
Prices soar as inflation inches towards 8%
"Price stability was one of the primary objectives of the reform process initiated in the early 1990s. The performance of the Indian economy has been quite satisfactory in this regard and reasonable price stability has been seen, particularly after the mid 1990s," it said in its first report on Demands for Grants, adding that adequate fiscal and monetary measures need to be taken to handle the current situation.
The reasons causing inflation need to be identified and dealt with effectively.
It also said the government should consider reintroducing the tax- free RBI bonds apart from the other schemes on offer to senior citizens. Since inflation hits senior citizens the hardest, and the government has to ensure that attractive savings schemes are available to them.
"The tax-free RBI bonds, offering an annual interest of 6.5 per cent was one such instrument, which enabled people to park their savings, however, the same has since been withdrawn," it said.
The committee has also said the base year for computing the Consumer Price Index for Industrial Workers, which is a measure of the cost-of-living, should be updated to make it more representative of retail prices.
The base year for the CPI-IW is 1982, while that for the Wholesale Price Index is 1993-94. Work on construction of a separate price index for services has started and the committee asked the government to expedite the work.
The computation of the CPI-IW and the Wholesale Price Index differs substantially in terms of base year and weightage given to different items. CPI-IW is more sensitive to changes in food prices, while changes in petroleum product prices are better reflected in WPI.
Despite the fact that much of the price rise was in the food and minerals category, inflation based on the CPI-IW was only 3 per cent in June 2004, the committee has pointed out.
