Inflation may fall below 8%, says Rangarajan

Inflation can drop below 8 per cent if confluence of factors like fall in global crude oil followed by a good monsoon work, Prime Minister’s Economic Advisory Council Chairman C Rangarajan said.

“You can get a much lower rate (below 8 per cent) of inflation, if there is confluence of favourable factors such as moderation in oil prices and so on,” Rangarajan told PTI.

Referring to the impact of good monsoon on prices, he said despite shortfall in rains in July, monsoon is expected to be good, and “on the whole we may have a good year”.

“As things stand, perhaps to look at a rate of inflation of 8-9 per cent will be a difficult thing, but probably, we will do it by March 2009,” Rangarajan said, adding the international oil prices are expected to remain at the current level. However, if the trend of declining oil prices continues, it would help to bring down the prices. The international oil prices have come down to $123 per barrel after crossing $147 a barrel on July 11.

 

Rangarajan said the current price rise was caused by many domestic and international factors like oil, food and commodity prices. The wholesale price index-based inflation, which stood at 7.82 per cent in May this year, shot up above 11 per cent in June after hike in petroleum prices (it touched 11.98 per cent for the week ended July 19).

“Inflation that we are seeing today is the result of external factors: oil, food and other commodity prices have impacted Indian economy. But domestically also there are factors which have also contributed,” he said.

Pointing out that some sectors of the economy showed signs of overheating last year, the EAC chairman said increase in money supply has also contributed to rise in prices.

Rangarajan said prices are rising as “the aggregate demand is also increasing with money supply growing at more than 20 per cent continuously for more than three years”.

Meanwhile, Arvind Virmani, chief economic advisor to the finance ministry, said inflation may come down to 5-6 per cent in the next 12 months. “I am hopeful that within a year inflation would come down to normal level of 5-6 per cent,” Virmani said.

On GDP growth prospects, Rangarajan said the economy is likely to slow down this year due to various external and domestic factors and may now be able to touch the previous rate of 9 per cent.

“As far as growth is concerned, it will slow down. It will slow down than what we have experienced in previous years. But nevertheless, I think we can still hope to have GDP growth of economy between 7.5 and 8 per cent,” he added.

Growth rate of agriculture, manufacturing and services sectors are expected to slow down, he said.

The EAC is expected to submit its report on Outlook of Economy for 2008-09 next week. In January, the EAC had projected GDP growth of 8.5 per cent for 2008-09.