NEW DELHI (Reuters) - Prime Minster Manmohan Singh said on Friday that
high headline inflation is beginning to pose a serious threat to
India's high growth plans, in one of his strongest warnings over the
risk of rising prices.

Singh added that farm supply chains needed to be boosted with
organised retail chains, a statement seen pushing for the entry of
modern supermarkets despite strong political opposition for foreign-
owned multibrand retail from within his Congress party.

His statement may underline shifting opinion within his government
that for years has prioritised growth over inflation worries, despite
criticism from some analysts that the government was doing too little,
too late to rein in prices.

Headline inflation for December accelerated to above 8.40 percent on
the back of high food inflation, which reached a one year high of 18.3
percent in end December. Some officials have said India may have to
live with higher inflation.

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

The government has been confident the economy would grow over 8.5
percent in the current fiscal that ends in March, buoyed by the near 9
percent growth in the first half of the fiscal year.

However, high food inflation and the risk of fuel inflation make it
unlikely that the government projections on growth will materialise,
according to many analysts

The prime minister also said in his speech that states should waive
local taxes on essential commodities.

"The public distribution system needs to be strengthened," Singh said.

Singh said a lasting solution to tackling high food inflation lay in
improving farm productivity, though the federal government has itself
not paid much attention to increase spending on improving farm
productivity and reform agriculture marketing.

Analysts have said that the current bout of food inflation is driven
by shortages of vegetables like onions and potatoes and there can be
no overnight solution.

The Reserve Bank of India, which has raised seven times since March to
tackle high headline inflation, has been left to deal with the knock
on effects of high food inflation.

The central bank, the Reserve Bank of India (RBI) has increased its
end March inflation forecast to 7 percent from the earlier 5.5
percent.

A Deputy Governor of the RBI had said earlier that monetary policy is
largely ineffective in tackling food inflation which stems from supply
shortages.

Globally, the risk from higher food prices has been highlighted in a
report by the Food and Agriculture Organisation (F.A.O), an U.N.
agency, which said that food prices hit a record high in January, a
problem set to worsen after a massive snowstorm in the United States
and floods in Australia.