Thaindian News

New Delhi, Oct 20 (IANS) Inflation is likely to come down to seven percent by the end of this financial year following a good monsoon and high base effect, the prime minister’s top economic adviser C. Rangarajan said Thursday.

“By March next year, the headline inflation will definitely come down to seven percent,” Rangarajan said at the Economic Editors conference here.

He said the presumptions of decline in inflation were based on substantial facts.

“Monsoon has been very good and therefore the agricultural production will be much better this year, so the food inflation, even if it shows some sings of rising in some weeks, will come down in the first quarter of next calender year,” Rangarajan told reporters on the sidelines of the conference.

“Inflation rate will definitely come down also because of the base effect. Therefore the expectation of seven percent inflation by March 2012 is very reasonable,” he said.

Food inflation rose sharply to cross double-digit levels at 10.6 percent for the week ended Oct 8 as against 9.32 percent in the previous week.

Asked why the government’s recent projections on inflation have gone wrong, Rangarajan said: “There has been unusual happenings, for example in 2010 inflation rate was coming down from the pick of 11 percent in April to almost eight percent in November 2010. Then came the unseasonal rain so the vegetable prices rose and once again inflation picked up.”

Prime Minister Manmohan Singh and all other policy makers had projected six percent inflation for this year.

However, inflation has remained stubbornly high near double-digit since January 2010. The headline inflation based on the wholesale price index was recorded at 9.72 percent in September, according to the latest official data.

Rangarajan, a former governor of the Reserve Bank of India, said considering the indications and available data, inflation must come down to seven percent by March 2012.

The RBI has hiked key policy rates 12 times since January 2010. However, that hasn’t helped in bringing down inflation much.

Rangarajan indicated that the RBI might hike the rates further to curb inflationary pressure.

On the negative impact of rate hikes on economic growth, Rangarajan said growth has slowed down due to other factors as well and it would not be fair to blame just rate hike for it.

“There has been a significant slowdown in the sectors like mining which is not linked to rate hike,” he said.

India’s industrial production has slowed down considerably in the past few months. It was registered at a sluggish 4.1 percent in August rising a bit from the 3.8 percent seen in July — its lowest in almost two years.

The economic growth slowed to 7.7 percent in April-June period, the weakest in six quarters.

Finance Minister Pranab Mukherjee said Wednesday the overall growth was likely to fall below eight percent in 2011-12 against the budgetary estimate of nearly nine percent.