Rangarajan attributes the increasing rate to factors on the supply front
BERHAMPUR: The inflation rate would come down to some six per cent in three to four months, said C. Rangarajan, Chairman, Economic Advisory Council, on Friday.
Delivering the 16th convocation address of Berhampur University at the tastefully decorated auditorium of Bhanja Bihar campus, Dr. Rangarajan hoped that inflation rate would come down further and remain at 5.5 per cent if the monsoon was good. But he was of the opinion that inflation would not affect our economic growth. The council had in January this year projected a growth of 8.5 per cent for 2008-09 year. “Given the domestic and international factors, it may be reasonable to expect a growth rate of around eight per cent,” he said. He was hopeful that if we were able to sustain our present tempo of development, we would emerge as the third largest economy in the world in another decade.
According to him, the recent inflation was mainly due to supply side factors. Drought in Australia reduced availability of wheat. Diversion of corn for bio-fuel reduced its availability for food consumption. On the domestic front, there had been significant expansion of money supply in recent years.
“During the last three years, money supply has been growing at an annual rate of more than 20 per cent. This increase in money supply has also injected significant liquidity into the economic system of our country,” he said. The supply side bottlenecks in relation to certain commodities had also added to the woes.
“Procurement of wheat has been good this year and it has touched a record figure of 20 million tonnes. There are indications that the monsoon will be normal this year,” he said, adding that these factors would contribute to moderating inflationary expectations.