Overall inflation in India is likely to take a dip by September as current levels could continue for a couple of months more, Kaushik Basu, Chief Economic Advisor to the Union Finance Ministry, said on Tuesday.
Addressing an interactive session on “The Indian Economy and the Economic Survey” hosted by the Southern Indian Chamber of Commerce and Industry (SICCI), Mr Basu said his expectation on inflation based on the Wholesale Price Index was that while the levels would remain at the current 7.5 per cent for a couple of months more, the Finance Ministry's calculations were that it would go below the 7 per cent mark by September.
“So, you have to live with this higher inflation for another two to three months,” he said.
Pointing out that though the inflation trajectory had been high — with food inflation over 20 per cent in 2010 — the food inflation was coming down to 10 per cent which was “in the right direction but still high.”
According to Mr Basu, there was no magic solution to inflation and prices could not be controlled by a Government decision, but rather had to be addressed through a combination of monetary and fiscal measures.
In his view, India's inflation was better managed than that of most emerging economies, though it was still high, he said.
On credit rating agencies such as S&P and Fitch downgrading their outlook on India, Mr Basu said these were “mistakes on their part”.
However, he added that uncomfortable as these statements may be, countries still cannot afford to ignore the credit rating scores as they affect investor confidence and investor mood.
“We may like, we may not like the statements but they are extremely important and you cannot ignore them.... they (agencies) have built up their reputation over long periods of time of careful work so there is a certain amount of respect and importance you have to give to credit rating agencies,” he said.
The way out that he advocated was to “always try and do better for ourselves so that even within the margin of mistakes people make we get a better rating”.
According to Mr Basu, an important trigger for the depreciation of the rupee was that the fears over splintering of the Euro and the resurrection of pre-existing currencies had forced people to park their monies in US treasuries in the belief that, in an uncertain scenario, low or no interest was not a problem as long as their principal was safe.
Though the growth rate had dropped to 6.5 per cent, which looked worse than it actually was only when compared with previous rates of high growth and by no means was an indicator that the country was going to the dogs, Mr Basu felt that given its fundamental strengths, the Indian economy had the roof open to rise with the right policy measures.
