Inflation will ease by April: Kaushik Basu

Chief Economic Advisor Kaushik Basu on Tuesday said inflation would ease by April, with low fiscal deficit and a good rabi (winter) crop improving food supplies.

“In a couple of months, the slightly lower fiscal deficit will begin to counter inflation… With better food production, inflation will die down. Food inflation is high, it’s a concern. I think by April-May the base effect would go,” Basu told reporters on the sidelines of a conference.

Basu said the wholesale price index (WPI) inflation, which rose fastest in 15 months to 8.56 per cent in January, was likely to average 4 per cent in the current financial year. He added the government needed to take action and the marginal decline in foods prices was a result of the measures taken by it.

In order to combat inflation, the government has scrapped import duty on rice, wheat, pulses, edible oils and sugar, and allowed the import of raw sugar at zero duty under open general licence. It has allocated two million tonne wheat and one million tonne rice to states for distribution to retail consumers.

Basu agreed the rise in fuel prices would lead to a marginal rise of 0.4 per cent in WPI inflation, but a lower fiscal deficit in 2010-11 would mitigate its effect to some extent. In the Budget, presented on February 26 last month, the government had projected the fiscal deficit to come down to 5.5 per cent in 2010-11, 4.8 per cent in 2011-12 and 4.1 per cent in 2012-13.

In the Budget, the government had increased Customs duty on petrol and diesel to 7.5 per cent from 2.5 per cent. It had also increased excise duty on non-branded petrol and diesel by Re 1. This made petrol and diesel costlier by Rs 2.67 a litre and Rs 2.58 a litre, respectively, in Delhi.

In the current financial year, the consumer price indices-based inflation remained high in the range of 8.6 to 17.6 per cent, whereas WPI inflation remained negative from June 2009 to August 2009 before rising to 8.56 per cent in January 2010.