'India may see negative inflation for next 2 months'

Inflation, which last week moved into negative zone, may continue to fall for another two months and the government would need a prudent policy to avert "an alarming situation", financial research major Deloitte has warned.

"A continuous decline in wholesale price index, which affects the wholesale units might create an alarming situation. As due to lower demand from consumers manufacturers slash their prices to boost sales, but consumers keep deferring their purchases anticipating a further fall in prices," Deloitte Principal Economist Shanto Ghosh told PTI.

To tackle the situation there is possibility that the Reserve Bank of India will go for interest rate cut but it is not likely to go for another round of fiscal measures as the current budget deficit is alarmingly high.

"The government should have more prudent policy in place which is focussed towards growth, like announcing more tax holidays, more moderation of tax and supportive policy to boost export demand," Ghosh added.

Deloitte further warned that the fall in inflation was "likely to continue for the next two months or so as the full impact of fiscal policy measure is still to come. Once the impact of fiscal measures comes into force, it will give automatic boost to the demand".

Inflation, which entered negative territory for the week ended June 6, declining to minus 1.61 per cent, recorded a similar fall three decades back.