Top Indian adviser sees single digit inflation by year-end

By Rajeev Ranjan Roy, IANS,

New Delhi : India’s inflation rate will come down to single digit by the end of this fiscal if oil prices keep softening in the international markets, says a top adviser in the finance ministry.

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“If oil prices go below $100 per barrel, the wholesale price index inflation will even come down to five-six percent by the end of the current fiscal,” Arvind Virmani, chief economic adviser in the finance ministry, told IANS in an interview.

“I am reasonably confident that within a year, inflation will be back to normal. In the short-term, it depends on oil prices to a large extent and we have seen oil prices coming down.”

He also said food price inflation has not been that severe in India when compared with the global situation, as prices of primary food articles such as fruits, vegetables, tea and lentils had gone up by 6.04 percent during the 52-weeks ended Aug 23.

“It is partly because of the nature of our economy, which is still isolated from the global situation except in one or two commodities like edible oils as we import some 60 percent-plus of our overall edible oil requirements,” he said.

“Nevertheless, our food price inflation has only been around seven percent for the primary food articles as compared to 45 percent for the index of food globally.”

The Prime Minister’s Economic Advisory Council (EAC) in its recent “Economic Outlook Report for 2008″ had said that a coordinated policy action could bring the inflation rate down to eight-nine percent by March 2009.

“Given the global impulse, to a large extent, the short-term outlook will depend really on what happens globally,” Virmani said.

“Of course, in the medium to long term, various monetary policy actions have been taken. These will help in bringing down inflation in the next three to six months.”

To rein in inflation, the Reserve Bank of India (RBI) successively hiked the repo rate or the rate which the central bank lends to commercial banks and the cash reserve ratio or the minimum balance a bank has to keep against deposits.

These measures helped in moderating the country’s inflation rate to 12.34 percent for the week ended Aug 23 from close to 13 percent a few weeks ago, bringing some relief to policy makers.

Virmani also projected a lower economic growth in India during the current fiscal, but higher then the projection of 7.7 percent growth predicted by the advisory council. The gross domestic product had expanded by nine percent last fiscal.

“This year the economy will grow below the trend of nine percent. The growth will remain between 7.75 percent and 8.75 percent,” he said.

Indian economy grew at 7.9 percent during the first quarter of this fiscal compared to 9.2 percent during the corresponding period of last year.