Inflation will moderate in the coming months but the country would need to bridge the demand- supply gap of essential food items to keep prices under check in the long run, said Economic Affairs Secretary Arvind Mayaram.
“Inflation will be a problem. We believe inflation in immediate future will come down marginally, but in the long run if we need to go down to the low single digit inflation numbers, we will have to continue to work towards increasing production and improving the logistics for movement of vegetables,” he said.
WPI (wholesale price index) inflation rose to a 14-month high of 7.52 per cent, while the retail inflation was in double digits at 11.24 per cent in November. The rise in inflation can be attributed mainly to price rise in vegetables and protein-rich items.
“There is in-elasticity of demand in terms of price as far as food is concerned,” he said adding there was an urgent need to amend the Agricultural Produce Market Committee (APMC) Act.
He said the APMC Act is “now beginning to hurt” by restricting movement and dissemination of food and cereals.
The food distribution needs to be more open and market oriented, he said.
Citing statistics, Mr. Mayaram said spurt in demand for food products, driven by improvement in living standards, is also adding to inflationary pressure.
Giving example of egg consumption, he said it has increased from 18 per person per annum in 1993-94 to 33 eggs per person in 20 years time.
“It also indicates that there is now a supply demand gap which needs to be met and therefore a large number of steps have been taken by the government.
“Of course there is a lag, we will see its reflection in next 2-4 years but we will have to continue to work towards increasing the production and creating the right kind of agri infrastructure for the movement of fruits, vegetables and eggs,” Mr. Mayaram said.
CAD will come down to $50 bn in 2013-14
Encouraged by rise in exports and decline in gold imports, Mr. Mayaram said the current account deficit (CAD) will come down to about $50 billion in the current financial year.
The CAD, which is the difference between inflow and outflow of foreign exchange, touched an all-time high of $88.2 billion or 4.8 per cent of GDP in 2012-13.
“Exports is doing fairly well ... month on month there might be slight blip here and there, but draw a line it will be straight and secular. It is not curving down. We are quite confident that CAD should be around $50 billion for the financial year,” Mr. Mayaram said.
He said the trade deficit, which is the difference between export and import, has narrowed to $9.2 billion in November, from $10.6 billion in October.
The CAD, in the first half (April-September) of the current fiscal, came down to $26.9 billion (3.1 per cent of GDP), from $37.9 billion (4.5 per cent of GDP) in H1 of 2012-13.
Declining gold imports has also contributed to improvement in the CAD, which dropped to 1.2 per cent in Q2, as against 4.9 per cent in Q1.
Gold imports, according to Mr. Mayaram, fell to 19.3 tonnes in November, from 162 tonnes in May.
In order to restrict inward shipment of gold, the government and the RBI had announced various measures, including hiking import duty to 10 per cent. With the decline of imports, there is a clamour that the government should ease the curbs as they are encouraging smuggling.