Improve market arrangements to contain inflation: Rangarajan

Says this would reduce the margins and bring down the prices

Supply-side measures could help contain inflation in the short term, said C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council. “I think as far as food inflation is concerned, releasing stocks will moderate market prices,” he told Business Standard on the sidelines of CII’s 3rd Finance and Investment Summit on Wednesday.

In October, Consumer Price Index-based inflation stood at 10.09 per cent. Retail inflation has been uncomfortably high through most of the first half of 2013-14. According to data released on Thursday, Wholesale Price Index-based inflation rose to seven per cent in October from 6.46 per cent in September. Primarily, the high inflation has been triggered by rising vegetable prices.

Rangarajan said the government already has in place a programme for the steady release of foodgrain. “In terms of vegetables, there is a need to improve market arrangements, as availability isn’t easy,” he said, adding this would reduce margins and, consequently, prices.

Madan Sabnavis, chief economist at CARE Ratings, said, “These prices are not determined by the government. Importing vegetables would not be a good option and during elections, politicians are usually inclined towards farmers.”

Due to this, they would want farmers to earn more and, therefore, this problem could persist, he added. “The number of intermediaries involved in the chain needs to be cut,” he said, adding until the next crop arrived, the chances of food prices falling were low.

The government, however, expects the good monsoon would have a moderating effect on food inflation and, as a result, overall inflation.

Retail inflation has been a key determinant of the Reserve Bank of India (RBI)’s policy measures. “Food inflation is still worryingly high, and the effects of the harvest are still awaited,” RBI Governor Raghuram Rajan had said on Wednesday. Rising inflation had led to the central bank increasing the repo rate by 25 basis points to 7.75 per cent in its second quarterly review last month.