NEW DELHI, June 28: Despite record world oil prices, India’s finance minister said Tuesday that inflation was under control because the government has borrowed less than planned to fund its budget deficit.

Palanappian Chidambaram told policymakers at a meeting of India’s National Development Council that the ability to curb government spending in the past year had helped India control inflation and keep interest rates stable.

“We should continue with fiscal consolidation to maintain a benign inflation and interest rate scenario,” Chidambaram told state chief ministers and finance ministry officials at the meeting organized by the country’s Planning Commission, which is responsible for developing five-year economic plans.

The budget deficit narrowed to an eight-year low in the year ended March 2005 as the government cut spending on large projects. The deficit was 4.1 per cent of gross domestic product, or 1.27 trillion rupees (29 billion dollars), less than the government’s own previous estimate of 4.5 per cent.

Inflation, which peaked above eight per cent last year, was 4.33 per cent for the year ended June 11 for wholesale prices, the most widely watched inflation measure which is released weekly.

However, inflation and interest rate fears were fuelled when India raised gasoline and diesel prices in early June, the first such rise since November 2004, in the face of record global crude oil prices.

In April the Reserve Bank of India raised the rate it pays commercial banks to borrow overnight to 5 per cent from 4.75 per cent, citing rising prices for commodities such as oil and steel.—AFP