Inflation may decline to 6-7 % by second-half of next fiscal

OPTIMISTIC:C. Rangarajan, Chairman,   | Photo Credit: — PHOTO: PTI

Special Correspondent

Agriculture and power are the two major areas of concern, says Rangarajan

Spot, futures trading need to be well-regulated

More emphasis on nuclear power required

KOLKATA: C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister, ruled out double digit inflation, saying that he was hopeful of food prices declining over the next two months and inflation being around 6-7 per cent by the second-half of the next fiscal. “In recent period there have been some signs of decline in food inflation which touched 17.8 per cent.”

Addressing a meeting organised by the Calcutta Chamber of Commerce here on Friday, he ruled out inflation reaching double digit, saying that it would stay at around 8.5 per cent by March 2010. “If rabi crop is extremely good, there will be a sudden decline in food inflation.” he said. The government will think in terms of import only if the situation so warrants. He also said that government borrowing need not push up inflation.

He said that agriculture and power were the two major areas of concern in the medium term that needed to be addressed. To a question, he said that there was no clear-cut evidence on future trading having an impact on the spot prices of foodgrains. However, he felt that spot and futures trading needed to be well-regulated and the Future Markets Commission had a role to play.

Dr. Rangarajan said that agriculture contributed 18 per cent to the gross domestic product (GDP), but it had not been growing at the desired rate of at least four per cent which was necessary for ensuring food security. “We need to improve the productivity of agriculture through research work which has to be disseminated to the farmers.”

As for the power problem, he said that although this was a key component of infrastructure more efforts were needed to achieve the target set for capacity addition. While equipment supply was one part of the problem there was also a case for increasing emphasis on nuclear power and addressing issues pertaining to land acquisition.

On growth rates, Dr. Rangrajan said by 2011-12 India's GDP growth rate was expected to be at 9 per cent through augmentation of domestic demand. “But beyond that a favourable worldwide situation was needed to breach that level,” he said. The pattern of growth should ensure inclusive growth with emphasis on employment-oriented sectors.

He said that there was nothing to worry about the current account deficit which was 2 per cent of the GDP as it was at a manageable level. Exports and imports would be lower than in the previous year but the gap would not be that large, he said.