Deflation not a threat to India: bankers

Bankers have allayed fears of deflation as the consumer price index is still high, despite inflation moving towards zero.

"Deflation is unlikely to have any major impact on the economy. Negative inflation, if it happens, will occur mainly on account of declining oil prices, easing monetary policy. It is unlikely to stay long," IDBI Bank Chief Financial Officer R K Bansal told PTI here.

Deflation happens if negative inflation sustains over a period of time, and is more a statistical phenomenon due to a high base effect.

Inflation, which stood at 0.27 per cent for the second week of March, is unlikely to stay below zero for more than one-two weeks. This will not have any major impact on demand as the consumer price inflation is still high, Bansal said.

"It (deflation) is unlikely to remain long and affect the common man," Bansal said.

India's inflation started declining to historic lows after the Reserve Bank of India (RBI) started reducing its policy rates aggressively.

Citibank Chief Financial Officer Abhijit Sen echoed a similar view saying that a declining inflation was a reflection of slowing economic growth and easing of monetary policy.

"This (deflation) is unlikely to continue for a long time. There are early signs of recovery in the economy and such a statistical phenomenon is unlikely to pose any threat to the common man in the long term," Sen said.

India's WPI-based inflation rose to around 13 per cent mid-last year on account of high international crude and commodity prices but started declining after the RBI took a series of policy actions, injecting over Rs 3-lakh crore liquidity into the system.

Deflation or negative inflation is unlikely to sustain for more than a few weeks, Sen said.

"Demand is improving in the system owing to the various stimulus measures taken by the Government and RBI. I do not expect a deflation in the economy," Axis Bank, Head of Credit, Partha Mukherjee said.

"Even if deflation occurs in the economy, it will not have any major impact on the common man as food prices are directly linked to consumer price index (CPI),"  Mukherjee said.