RBI action likely if inflation rises too fast: Basu

Some more tightening of the monetary policy can be expected from the Reserve Bank of India (RBI) if inflation rises across-the-board, Chief Economic Advisor Kaushik Basu said here today.

"The inflation figure in March will be on the higher side. But if the rise is across-the-board, some tight monetary measures can be expected from the Reserve Bank," Basu told reporters on the sidelines of a function here.

"If the inflation is not high across-the-board, when we break it up, there will not be any action," he said, adding, "the higher IIP index will not increase fears of inflation."

According to Basu, it is expected that March inflation will  be high. From July onwards, however, inflation will become very low, he said. "The base effect will come into play in the next three months. From July onwards, it will be very low," he said.

An average monsoon would help in alleviating inflation but if there is a drought like last year, then there would be some upward pressure on prices, Basu pointed out.

On the fast rising rupee, which has been impacting IT companies and exporters, Basu said, the rupee rise is good news in one way as it means more inflows which show the country as a good investment destination. The situation, however, needs to be monitored carefully, he said.

He, however, cautioned against any policy measures to tame foreign fund flows saying, "don't temper with inflows with legislative kind of restrictions or with some market operations, or with some sterilisation measures," as such measures will send out bad signals. He also praised RBI for managing the currency exchange fluctuations very well.

On the macro-front, he said the government is committed to reducing total debt to 68 per cent of GDP by 2015 from the high 82 per cent at present.

"It was a commitment we did in our budget that we will reduce our total debt to 68 per cent of GDP in the next five years. So, all the global rating agencies have given a better rating for us due to this budgetary commitment," he said.

At present, the country's debt is a high 82 per cent of the GDP according to the estimate of the International Monetary Fund and 77-78 per cent according to the government estimate, the chief economic advisor said.