Inflation will start declining from Dec: Kaushik Basu

Inflation will start declining from December and the Reserve Bank of India expects it to come down to 7 per cent by the end of the financial year, Chief Economic Adviser to the finance ministry, Kaushik Basu, said on Saturday.

Headline inflation hovered near the double-digit mark, at 9.73 per cent, in October. It was 9.72 per cent in September.

Addressing a symposium on 'Global Uncertainty and its Impact on India's Exports', he said India was not a high inflationary economy compared to countries like Germany and Hungary. "Both these countries have huge inflation and we are nowhere near it," he said.

"My expectation is December inflation, data for which we will get in January, will be lower. The RBI and the finance ministry expect inflation to be seven per cent in March," he said.

Holding that inflationary trends of 9-10 per cent have been difficult and hard on people, Basu said it had remained close to 10 per cent for four months last year but has fortunately gone down.

However, India has witnessed longer periods of double digit inflation, even at around 20 per cent for over 20 months in the 70s and 90s, Basu noted. He said food inflation may also show a decline by mid-December.

Among factors contributing to inflation are international scenario, including crude prices.

"Whenever crude prices go up, inflationary pressures go up. If global pricing is more and you hold it low for Indian consumers you will have to generate money in form of subsidy. That injected money will cause other prices to rise. If you allow petrol/diesel prices to rise, that will also have some effect," he said.

No matter what steps are taken, barring a few differences here and there, inflationary pressures would stay when global commodities prices surge, Basu said.

Calling for rooting out corruption, Basu said "a few high profile corruption cases" has resulted in the atmosphere being vitiated in India whereby there is lot of suspicion around the board.

"Nothing can be more debilitating for a societal structure when there is mutual suspicion across the board with finger pointing. If any decision I am going to take is going to come under scrutiny or suspicion, one way to stay clear is to not take decision," he said. The country has to be in the forefront of both economic and moral fronts, he said.

But corruption is an "intricate problem," which is like removing a flawed organ from a human body without affecting the healthy tissues, Basu said. This needed professional expertise and the design in which corruption will be rooted out had to be devised, he said.