No threat of deflation says RBI governor

Even as the inflation fell to a three-decade low of minus 1.61 per cent, Reserve Bank Governor D Subbarao today said there is no threat of deflation as food and crude oil prices are still firm.

"India does not suffer from any demand constraints, therefore there is no concern of deflation," Subbarao told reporters here.

Although wholesale price index is negative, there are certain parts of the index, like food articles, where inflation is significant, he said.

At the same time, oil prices are firming up, he said, adding there is talk that world food production will be lower than the trend.

"We will take into account all these developing trends in the July review," he said.

According to the RBI annual monetary policy, inflation is projected at four per cent at the end of March 2010.

The annual rate of inflation, calculated on a point-to-point basis, stood at minus 1.61 per cent for the week ended June 6 as compared to 0.13 per cent in the previous week and 11.66 per cent during the corresponding week of previous year.

However, food articles were costlier by 8.7 per cent from the comparable week last year as pulses moved up 17 per cent, cereals 13.5 per cent, and fruit and vegetables 10 per cent.

The decline in inflation was on account of a fall in fuel prices as international crude oil is now ruling around USD 70 a barrel against over USD 140 a barrel during the year-ago period.

On the growth, Subbarao said there is need to get back to the high growth trajectory.

"I think the stimulus measure of both of the government and the RBI have worked their way through," he said.

There is demand revival in cement, steel, coal and auto sector, he said, adding, India does not suffer from demand constraints.

He also said the Reserve Bank will be looking at reversing the expansionary policy at an appropriate time.

"I do not want to say we are going to do it right now or in the near future but certainly that is part of the agenda," he said.

The RBI Governor also clarified that "we will manage the government borrowing programme in an non-disruptive manner".

He, however, refrained to give the way it will manage the government borrowing programme.

As per the interim Budget estimate, unveiled in February this year, the government is set to borrow Rs 3,60,000 crore during the current fiscal.