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India PM warns inflation serious threat to growth

NEW DELHI, Feb 4, 2011 – Prime Minister Manmohan Singh warned Friday that high inflation was threatening India\’s rapid economic growth and needed to be brought under control with "great urgency".

Singh\’s warning, in a speech to state government bureaucrats, came a day after data showed annual food inflation standing at 17.05 percent, driven by surging onion prices, a local dietary staple.

"Inflation poses a serious threat to the growth momentum," Singh said. "Whatever be the cause, the fact remains that inflation is something which needs to be tackled with great urgency."

Surging food prices have kept overall inflation high and a rise in the price of crude oil to over $100 a barrel for the first time in over two years is fuelling the problem.

Pressure has been mounting on the central bank and the government to contain inflation as Singh and his Congress party gear up for nine state elections over the next 18 months.

The prime minister called for a "paradigm shift" to modernise production and distribution methods and improve the availability of goods.

"Supply chains need to be strengthened and these need to be dovetailed with organized retail chains for quicker and more efficient distribution of farm products and more remunerative prices for our farmers," he said.

The central bank has already hiked interest rates seven times in under a year in a bid to quell inflation and is expected to raise borrowing costs again at its March 17 policy meeting, if not earlier.

But analysts fear the aggressive hikes could slow India\’s near-nine percent growth rate and jeopardise the government\’s goal of attaining the double-digit expansion it needs to significantly reduce poverty.

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High food prices have added to public anger over a series of massive corruption scandals, creating a toxic mix for Singh\’s administration less than two years into its second term.

India\’s stock market has already slumped this year and analysts say that any signs that inflation is spinning out of control could scare away badly needed global investors.

Wages in India are already on the rise to offset annual inflation, which surged in December to 8.43 percent, up nearly a percentage point from the previous month.

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