Inflation may ease to 6-7% by March, says Basu

The country’s headline inflation was expected to remain between 6 per cent and 7 per cent by the end of this financial year, even as volatility in global commodity prices and excess liquidity in the international markets were matters of concern for the government, said Chief Economic Advisor Kaushik Basu today said.

“Inflation is still a concern. The earlier expectation that it would go below 6 per cent by March looks unlikely. International liquidity is very high. That could affect us. But, if inflation is around 6.5 per cent, it will still be manageable,” he said on the sidelines of a meeting of the Merchants’ Chamber of Commerce here today.

Besides, the ongoing currency war between the US and China was putting inflationary pressure on India, he added.

“When China and the US get into currency war, the excess money goes to other countries. This is putting pressure on India. The additional money supply is bouncing and coming to India,” he said.

In recent months, several Asian countries have tightened their capital control policies due to liquidity inflows and the resultant inflationary pressure.

Under quantitative easing, the US has been printing money, which has reduced the profitability of Chinese exporters, as they get low returns. On the other hand, China is being accused of artificially undervaluing the yuan.

The annual headline inflation eased to 7.48 per cent in November — its lowest level in a year — from 8.58 per cent in the previous month.

Basu said he expected GDP growth to be close to 8.75 per cent by the end of the year, with an upward or downward fluctuation of 0.35 per cent.

If the debt crisis in Ireland spilt on to Spain and Italy, India’s growth could be about 8.40 per cent, he said.

Rangarajan on inflation
The inflation rate was expected to come down to 5.5 per cent by March 2011, Prime Minister’s Economic Advisory Council Chairman C Rangarajan said today.

The PM panel also sees the country achieving a GDP growth rate between 8.5 per cent and 9 per cent in the current financial year.

“I think by March (2011), we can expect (WPI) inflation to come down to 5.5 per cent,” Rangarajan said on the sidelines of the 93rd annual conference of Indian Economic Association here.

“I think any level of inflation beyond 5 per cent (threshold level of inflation) is uncomfortable,” he added.