Food inflation may increase further in the coming weeks, but there is no cause for alarm as the rise is more the result of the low-base effect, Deputy Chairman of Planning Commission Montek Singh Ahulwalia said on Wednesday.
As of May 29, food inflation stood at 16.74 per cent. “It is quite possible that when the data comes out on Thursday, you may see a little increase in food inflation. That is not the reason to worry. As you see the weeks go by, it will come down again,” he said.
Food inflation at this time last year was quite low, and this might make even a nominal price rise now look higher. “… That is because this time last year, food index actually fell and then started rising very sharply.”
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The prices of edibles started rising last year, after food production was affected by a poor monsoon.
After peaking at more than 20 per cent in December, food inflation fell to 16 per cent, but was behind the overall high wholesale price-based inflation, which entered the double digit in May, he said.
The key to lower food inflation was a sensible fiscal and macro policy and a good harvest, he pointed out.
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Dr. Ahluwalia said the government's borrowing programme would not be affected by the liquidity crunch fuelled by the debt incurred by telecom companies to pay up for the licences, and the payment of advance taxes by corporates for the first quarter this fiscal.
The government planned to borrow Rs. 4.57 lakh crore this fiscal.
Liquidity shortage
The system was facing liquidity shortage owing to the more than Rs. 67,000-crore outgo for payment of the fees for 3G spectrum, and another Rs. 38,000 crore towards the spectrum fees for broadband wireless spectrum. Besides, corporates were paying advance taxes for the first quarter this fiscal.
Dr. Ahluwalia expressed the hope that fiscal deficit would be in control.