'Inflation beyond tolerance levels'

Q&A: Duvvuri Subbarao

On August 7, Business Standard had interviewed Finance Secretary Duvvuri Subbarao, who was appointed RBI governor on Monday.

That interview, perhaps his last in his present position, saw him tell Siddharth Zarabi and Rituparna Bhuyan that double-digit inflation would persist for the next couple of months. Excerpts:

What is your assessment of the current inflation scenario?

Inflation close to 12 per cent is certainly beyond tolerance levels. Bringing it down is a priority. But there are challenges to doing so, because much of the inflation that we see today is ‘imported’.

In as much as the current bout of inflation has roots in global factors, purely domestic policy action is not enough to bring it down. We need a supportive global situation. There are some improved prospects — particularly by way of softening oil, food and metal prices at the global level.

Do you think that the fiscal and administrative steps have had an impact on price expectations?

Oil prices have started to come down, but it is too early to tell what level they will come down to and where they will stabilise. Several variables determine the global price of crude beyond simple supply-demand factors, such as, the strength of the dollar, the speculative market and the global political situation.

Food prices, at home and even at the global level, will be more moderate than during the last season. Same for metals as the supply response seems to be kicking in.

So, on all the global factors, we are beyond the inflexion point and should see inflation coming down. But there will be no significant respite for the next few months, and we will have to put up with a fairly high level of inflation.

When you say fairly high level of inflation, are you willing to put a number to it?

Double-digit inflation will persist for the next couple of months.

Do you feel that steps taken so far have had a moderating impact on inflation?

Most certainly. People keep asking why inflation is still high in spite of all the steps taken. The point is we do not factor in the counterfactual. If the government had not taken the fiscal policy actions, or administrative actions, or if the Reserve Bank of India (RBI) had not tightened monetary policy, it is plausible that inflation would have been much higher.

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