Maintaining that food inflation will dip further in the next two weeks from the current level of 12.81 per cent, Chief Economic Advisor Kaushik Basu on Friday pitched for a staggered exit from the monetary stimulus so as not to affect the growth momentum. In an interaction with the media here on inflation and growth, ahead of the monetary policy review by the Reserve Bank of India on July 27, Dr. Basu said: “Complete exit from stimulus, whether in terms of monetary policy or fiscal policy, cannot be done suddenly, it has to be a gradual process.''
Projecting an economic growth of over 8.5 per cent for 2010-11 with close to a nine per cent expansion in the first quarter (April-June), Dr. Basu argued that although non-food inflation was on a gradual rise — indicating a seep-in to the manufacturing sector — the overall inflation level would cool down to 5 per cent by the end of the fiscal from 10.55 per cent in June.
Even as the full impact of the hike in fuel prices is yet to get reflected in the WPI (Wholesale Price Index) headline inflation data for July, Finance Minister Pranab Mukherjee had reiterated time and again that the inflation level would come down to about 5-6 per cent by the end of December. Although a marginal hike in short-term rates to contain the price spiral has already been factored in by analysts and the markets as part of the RBI's exit from its soft monetary policy, the Chief Economic Advisor maintained that inflation should not be curtailed in such a way that it retards employment generation. “Sudden curbs on inflation will exacerbate unemployment,” he said.
With employment generation dependent on the pace of overall growth, Dr. Basu said: “Right now, I believe growth will be faster than 8.5 per cent this fiscal...in the first quarter it will be around 9 per cent.”
As for food inflation, he felt it would come down substantially in the next two weeks. “Food inflation continues to slow down and non-food inflation is on a slow pick-up... It is reasonable to predict that food inflation that will be announced two weeks from now, that is, on Thursday, July 29, will be substantially lower than what the inflation is right now,” he said. Dr. Basu pointed out that though food inflation was softening, the country had to work towards raising food productivity and production, across the board, especially in pulses in the medium and long-term. “We also have to work in the short-run to improve our foodgrain release technology in periods when food prices are high,” he said. Despite the lower industrial growth of 11.5 per cent in May, Dr. Basu said that manufacturing segments such as capital goods and consumer durables were growing particularly fast. “Since these items tend to capture the moods of corporations and consumers, the optimism in these figures speaks well for India's overall growth prospects in the medium to long-term,” he said.
