CEA waves policy shield to repel poor-rain fears

Subramanian says govt had through its policy managed to contain inflation last year when rainfall was not very good

Chief Economic Advisor Arvind Subramanian on Tuesday said the government would contain inflation if the monsoon turned out to be bad, as was done last year. His comments came after the India Meteorological Department predicted deficient rain this year.

Subramanian said the government had through its policy managed to contain inflation last year when rainfall was not very good.

"Last year as well, the monsoon was not very good, through government policy, we managed to contain inflation and we intend to do that this time around, should the monsoon be as bad as some people fear. We don't know how it is going to pan out but I think the government will certainly act to contain the inflation risk," he said.

In the monetary review, the Reserve Bank of India (RBI) asked the government to put in place a "contingency plan" to deal with the possibility of a below-normal monsoon and its impact on foodgrain production and prices. "What is clear is that contingency plans for food management ... need to be in place to manage the impact of low production on inflation," RBI Governor Raghuram Rajan said in his second bi-monthly monetary policy for 2015-16.

The Met department had lowered the monsoon forecast to 'deficient' for the current year, after unseasonal rains and hail in March, which have already impacted foodgrain production.

RBI said: "For the kharif (summer) season, the outlook is clouded by the first estimates of IMD predicting the southwest monsoon will be seven per cent below the long-period average. This has been exacerbated by the confirmation of the onset of El Niño by the Australian Bureau of Meteorology."

A strong food policy and management, it said, would be important to help keep inflation and inflationary expectations contained over the near term.

The agriculture ministry had estimated more than five per cent drop in foodgrain production at 251.12 million tonnes for the 2014-15 crop year, against a record 265.04 million tonnes production in the year-ago period.

Meanwhile, the Wholesale Price Index-based deflation was at a record 2.65 per cent in April, while retail inflation was at a four-month low of 4.87 per cent.