Food inflation beginning to look structural: Gokarn

Reserve Bank of India (RBI) Deputy Governor Subir Gokarn on Wednesday said food inflation was beginning to look structural and the best way to tackle it was by addressing supply-side issues.

“We have been emphasising that food inflation is starting to look structural in nature...We have come to the conclusion that there is a structural driver to food inflation. In this case, the apt approach is to address the supply side,” Gokarn said at a conference on inclusive development.

Food inflation, which has remained in double-digits since June last year, was at 10.15 per cent for the week to November 13.

The deficiency in protein needed to be addressed with a supply response like the Green Revolution of the 1960s, he said.

Gokarn said monetary policy had a limited role in curbing food inflationary pressures.

The apt approach was to use monetary policy as an expectations management tool when capacities were stretched, he said, adding there was a threat of spillover of sectoral inflation drivers to broader inflation.

“It (monetary policy) is not going to solve the problem because we need a supply response to solve the problem...We have a limited role in trying to prevent escalation of food inflationary pressures,” he said.

“The monetary response is to ensure that expectations are anchored and that we do not allow the food pressures to translate into larger wider inflationary pressures and that is what we have been doing all along,” he said.

RBI has raised short-term benchmark rate by 150-200 basis points since March in a bid to curb inflationary expectations. India’s headline inflation rate was at a nine-month low of 8.58 per cent in October, but way above RBI’s comfort level of around five per cent.

“Actions are conditioned by the need to prevent food inflation from spilling over to broader inflationary pressures as the economy is reaching capacity limits. That risk is high and we need to act accordingly,” he said.

On capital flows, Gokarn said India needed the flows to finance the high current account deficit.

“Because it (current account) is large we have to worry how to finance it. Our problem or situation is quite different from that of our Asian neighbours, who are running current account surpluses and still dealing with capital inflows,” he said.