Basu sees fluctuating downward trend

Chief Economic Advisor Kaushik Basu today assailed fears over double-digit inflation and predicted that prices would quell in the coming months, even as the wholesale price index (WPI) inflation for April saw a small decline at 9.59 per cent, compared to 9.9 per cent the month before.

“Over the next two months, there will be a fluctuating downward trend (in inflation). Food prices should have declined faster but inflation control is not an easy job,” Basu said, while adding that there could be a slight upswing in June due to the base effect.

Basu said that it was “very very unlikely that inflation will go back to double digits” but warned that prices would rise if the monsoon rains failed to deliver.

Meanwhile, expressing his apprehension over the rupee’s robust appreciation in the past year, Basu called on the Reserve Bank of India (RBI) to undertake market-based action.

“I am not in favour of increasing capital controls and try to control the flow of money. Maybe this is the kind of situation where some open market action to counter the exchange rate appreciation is to be thought about,” he said.

Basu explained that significant amounts of inflows into the market had a part to play in the appreciation of the rupee. During the last fiscal, the currency has strengthen by 12.6 per cent and 8.3 per cent vis-a-vis the dollar and the euro, respectively.

“The RBI’s policy is right in that it is not trying to buck the trend if it is permanent. But here, it seems like a trend which is a fluctuation, so some attempt that market place action to correct this is called for,” he added.

On the proposed food security Bill, Basu said that additional procurement was unlikely to widen the fiscal deficit as streamlining of the supply chain and cutting back on other existing subsidies would ensure that fiscal targets were met.