Finance minister Nirmala Sitharaman on Friday said the government’s priority is to tame inflation to ensure sustained economic growth and said hiking interest rates is not the only option to tackle price rise.

The key priority for economic growth “is taming inflation” because persistently high inflation will weaken demand, she said addressing business leaders in the national capital.

Retail inflation soared to a 15-month high of 7.44 per cent in July, mainly on account of spiralling prices of tomatoes and vegetables.

“Equally, elevated interest rates for considerable time can come in the way of economic recovery,” the finance minister said at the B20 Summit India 2023, being organised by industry body CII.

She said the tendency to use interest rates as the only solution to deal with inflation has its own downside.

“And most economies do have this problem, because I think, for want of a better word, obsession with using interest rate as the only tool to deal with inflation. Temporarily it can give but sooner the supply side issues can creep the ugly heads up,” she said.

Most of the central banks, including the Reserve Bank of India (RBI), have raised interest rates to tackle inflation following the outbreak of the Russia-Ukraine war in February last year that has also disrupted global supply chains.

“Task for the central banks therefore... particularly in today’s context is to keep in mind growth and growth-related priorities even as equally looking at controlling inflation,” Sitharaman said.

GDP trend

With the National Statistics Office releasing GDP data on August 31, the finance minister was optimistic of a good numbers. “As things stand, nobody has a clue. But everybody feels that yes, the first quarter did go on well, so the numbers should be good.”

The economy is seen to have grown at a four-quarter high of about 8 per cent in the first quarter, boosted by strong domestic demand, an uptick in the services sector as well as the government’s focus on capital expenditure.

Most private agencies estimate that GDP growth was in the range of 7.8–8.5 per cent in the quarter ended June 30, which is roughly in sync with the RBI’s projection of 8 per cent growth in the period.