RBI to hike in interest rates soon, warn economists

April 15th, 2008 - 2:57 pm ICT by admin  

New Delhi, April 15 (ANI): The Reserve Bank of India will soon hike its interest rates to contain money supply and thereby the inflation, feel influential economists.
A panel consisting of Planning Commission Member, Dr. Abhijit Sen, Rajya Sabha MP and Chairman of the Commission for Unorganised Sector, Dr. Arjun Sengupta, JNU Vice Chancellor, Dr. B.B. Bhattacharya, said they were certain that there would be intervention soon from the RBI to control the inflation which has jumped to a 40-month high of 7.4 percent already and showed no signs of abating.
The prominent economists were participating in a roundtable on “Rising Inflation and Government’s policy responses”, organised by Observer Research Foundation here last evening.
Former Economic Advisor to Prime Minister and Finance Secretary, Dr. S. Narayan, who chaired the roundtable, wondered why there had been no government intervention so far. He also asked whether there had been a failure in intelligence gathering.
Former Economic Director to the Prime Minister and Finance Secretary, Dr. S. Narayan called for strong Government intervention to check inflation. He explained how neighbouring countries like Pakistan and Bangladesh have succeeded in checking the inflationary trend through strong state interventions.
Dr. Narayan, now an ORF Advisor, said Bangladesh has been very successful in ensuring a buffer stock of foodgrains despite the disastrous cyclone through effective monitoring and advices through district level officers. “If a country like Bangladesh can do it, why can’t we?”, he asked. Dr. Abhijit Sen and all others agreed.
Emphasising on the need for maintaining bufferstock, Dr. Narayan said it should be either through increased food production or through imports.
The economic experts unanimously agreed that strengthening of the public distribution system was the best and effective way to rein in inflation. Dr. Abhijit Sen said improving delivery through public distribution system was the most effective way to control inflation, which is rising worldwide.
Dr. Abhijit Sen said the rising inflation has nothing to do with the wheat production or prices. He instead blamed the export of rice, which had been continuing till recently.
Dr. Abhijit Sen also blamed the expectation of inflation for the inflation. “Once the expectation of inflation is there, the inflation goes up,” he said.
Dr. Arjun Sengupta, Rajya Sabha MP, suggested improving our foodgrain stocks immediately through phased imports. “I would be happy if our stock improves after harvest, but I won’t risk waiting till that.”
Dr. Sengupta suggested distributing the imported grains through the PDS to improve the supply side.
Dr. Jagdish Shetigar, convenor of BJP Economic Cell, blamed the low bufferstock for the rising inflation, saying it led to hindrance in the public distribution system and thereby rise in prices.
Prof. B.B. Bhattacharya, Vice Chancellor of JNU, said it is not the supply side but the demand side which is creating inflation. He noted that demands are increasing from the emerging economies like India, China, Turkey which have spiked up prices worldwide. And when the prices rise globally, your cost too go up and result in high prices, he said.
Dr. Prasenjit Bose of the CPI-M blamed weakening of the public distribution system for the inflation while Dr. Gurbachan Singh suggested more monetary interventions from the State to check inflationary trend.
Making a detailed presentation on inflation, Dr. Jayshree Sengupta, ORF Visiting Fellow, said with the inflation at the 40-month high of 7.4 percent, “the aam admi” was in peril and pensioners and people with fixed incomes were feeling the pinch.
She said though India had faced double-digit inflation in 67-68, 73-74, 76-77, 79-80, 90-91 and 91-92, mostly they were because of drought and fuel price hike. She said rising demand from increased population and income with stagnant supply of foodgrains were the main reasons for rising food prices.
Dr. Jayshree noted that while crude prices were close to dollar 112 a barrel, world production of wheat has declined with area under wheat shrinking worldwide due to diversification of land for bio-fuel production.
She said China and India, emerging economies, were among the top at the inflationary trend, much higher than the US, United Kingdom, European Union and Japan (which has the least trend of just 0.4 per cent).
Dr. Jayshree suggested reducing import duties on essential commodities, increasing supply of commodities in short supply, improving distribution through PDS, raising interest rates and controlling prices on essential commodities and sources of easy access by the poor. (ANI)

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