'High consumption behind rise in prices'

The inclusive nature of India’s growth, responsible for enhancing consumer spending power, may be the primary reason behind the high food inflation, O P Bhatt, former chairman of State Bank of India, said on Wednesday.

Bhatt said the rate at which India was growing warrants slightly higher inflation. "Inflation is the biggest issue, which is largely driven by food prices. There is a theory that India is doing so well, there are so many people who are earning more, there are so many people who are coming out of poverty and having more than one square meal a day. So, if 300-400 million poor people in the country start consuming twice the food they used to earlier, food prices are definitely going to go up,” he said.

Inflation is hovering at double-digit levels for more than a year now. RBI said growth may be sacrificed in the short run, since high inflation would impede growth in the long run.

Bhatt expressed concern over the fiscal deficit, as revenue coming in was not much, a sign of a slowing economy. "There is not enough disinvestment taking place. There is definitely some slowdown in the economy. And, if the economy slows, there would be stresses in the economy and some of these stress would show as non-performing assets on banks' balance sheets," he said.

He said though high interest rate was a concern in the short term, going forward, it would be good for the economy, since the room for cutting rates would also be higher. "High interest rate has its own advantage. When India decides to give stimulus to growth, the room to cut rates would be much higher than any other country," he added.