Managing inflationary pressure biggest challenge: Rangarajan

Managing inflationary pressure -- particularly in foodgrain prices -- is the biggest challenge before policymakers, according to C Rangarajan, the chairman of the Prime Minister's Economic Advisory Council.

Rangarajan, a former governor of the Reserve Bank of India, was speaking on the topic, 'The growth path and some concerns on the way', at a function at the Federation of Gujarat Industries (FGI) here today.

"There are a few areas where immediate engagement of the policy-makers is needed. In the short run, managing inflationary pressures, particularly foodgrain prices, is the biggest challenge," he said.

"We also need to watch out what happens to crude prices in the global markets. We must remain committed to maintaining inflation at a low level."

Saying that he did not subscribe to the idea that high growth demanded a higher level of inflation, he stated, "We must use all of our policy instruments -- interventions in the grain market, fiscal and monetary policies -- to bring down inflation further and re-anchor inflationary expectations to the 5% comfort zone."

The second concern, he said, was the balance of payments, as the current account deficit had remained very high at 3.7% of the GDP in the first half of 2010-11. "Efforts must be made to bring down the current account deficit to a more manageable level of 2.0-2.5% of GDP."

This, he said, was desirable to impart much-needed stability on the external payment front and to reduce the risk to domestic economy from volatility in international financial markets.

Another critical challenge was fiscal consolidation, which was a necessary prerequisite for sustained growth, he said.