Inflation temporary; prices to come down by month-end: Montek

Describing the food inflation a "temporary phenomenon", the Planning Commission has said that the prices of various food items will decline towards the month-end and that the economic growth during the year would exceed 7 per cent.

"The food price inflation is a worrying problem, but in my view the food price inflation strictly on vegetables etc. is a temporary phenomenon... They (prices) will go down further," Planning Commission Deputy Chairman Montek Singh Ahluwalia said in an interview to Karan Thapar for India Tonight programme telecast on CNBC TV-18.

With the coming of the rabi (winter) crop, he added, "You will see a drop in cereal inflation compared to what it is now ... Wait for the end of January... On the foodgrain front there will be ample available".

Driven by rising prices of pulses, potato, onion and other vegetables, the food inflation soared to decade's high of about 20 per cent in December before sliding marginally.

About the country's economic growth prospects in the current fiscal, Ahluwalia said it "would definitely be 7 per cent or a little more is quite likely".

The Commission, which had projected a growth rate of 6.5 per cent for 2009-10, he said, would revise it upwards, especially in view of the robust 7.9 per cent GDP recorded in the second quarter (July-September). Economy grew by 6.7 per cent in 2008-09.

Ahluwalia refuted contentions that rising inflation could be linked to the stimulus packages provided by the government to help industry fight the global financial crisis.

"There are many factors that are involved. Bottom line is that inflation has edged up and the policy in the course of the next year has to take that into account," he said.

On the possibility of withdrawal of stimulus, Ahluwalia said the government would take a view at the time of preparing the budget. "We had said right at the beginning that sometime in the course of the year we would begin to slowly wind it down," he added.

The government had provided three stimulus packages to industry to combat the impact of the global financial meltdown triggered by the collapse of America's iconic banker Lehman Brothers in September 2008.

The stimulus had cost the state exchequer Rs 1.86 lakh crore, which is estimated to push up the fiscal deficit to 6.8 per cent of GDP during FY'10, against 6.2 per cent a year ago.

Ahluwalia also underlined the need for moderating the fiscal deficit in the next budget expected to be unveiled on February 26, but added, "we need not be rigid about how much the reduction should be".

However, he added that, "The deficit should come down from whatever, about 6.5 per cent, to about 5.5 per cent."

On the possibility of fiscal deficit exceeding the estimate of 6.8 per cent, he said, "I would not be surprised if revenues are lower because last year there was a very substantial fiscal stimulus in terms of excise duty rebates etc. And that could affect the growth of revenue".