The Chairman of Economic Advisory Council to the Prime Minister, C. Rangarajan, on Tuesday suggested a three-pronged strategy to contain inflation that has been hovering around nine per cent.
Talking to reporters, he said it was the right decision of the Reserve Bank of India to revise repo rates and reverse repo rates to tackle inflation that was at an uncomfortable level. “We have to bring down the inflation to twice the comfort zone of four to five per cent. We expect the inflation based on Wholesale Price Index to be around 6.8 per cent by December-end and at 5.5 per cent by March 2011,” he told The Hindu.
Delivering the fifth annual lecture on the ‘current economic scenario' organised by the Scientific Research Association for Economics and Finance, he said: “In the short term, the biggest challenge could be met by improving agricultural production, using available food stock to bring down the market prices and increasing the allocation under the subsidised public distribution system in measured quantities at prices below the market price, and monetary authorities should take appropriate steps to contain demand pressures.”
Mr. Rangarajan said government intervention was needed in the power sector to sustain the high growth rate of 8 to 9 per cent. Some of the interventions could be to encourage private parties to invest in power generation, have an active plan for creating power capacity over the next 15 years, sustain the increase in capacity for manufacture for power plant, diversify the fuel sources, and leverage the India-U.S. nuclear agreement to rapidly expand the scope of nuclear power generating capacity.
Mr. Rangarajan said he expected the Indian economy to grow by 8.5 per cent during the current fiscal following a jump in agricultural production and with industrial and service sectors growing more or less at the same rate as last year.
“There will be a substantial jump in agricultural production. The monsoon has been good and therefore the agriculture Gross Domestic Product may grow by 4.5 per cent during the year. Industrial production will grow by 9.7 per cent and services by 8.9 per cent,” he said.
Referring to the current account deficit, he said that it might be around $ 45 billion. “We need capital flows to cover this deficit. We can also conveniently add something like $ 20 billion to the reserve. Thus, capital inflows of the order of $ 65 billion should not cause any distortions to the economy. Beyond that, sterilised intervention may become necessary,” he said.
In his presidential address, T.S. Krishna Murthy, former Chief Election Commissioner, said the country was at the crossroads and it faced several challenges.
He also wondered whether the economic fundamentals were strong as made out to be.