With downward movement of price rise and fiscal deficit under control, the Government is hopeful that inflation will remain under control as it has adequate stocks to deal with shortage of foodgrain in the eventuality of poor monsoon. “One factor that is going to affect inflation going forward is the monsoon. Because, as we do have adequate stocks, we will be able to contain inflation even if monsoon does not turn out to be as good,” Chief Economic Advisor Arvind Subramanian told reporters here on Tuesday.
Citing low inflation and fiscal deficit numbers, Subramanian also pitched for a rate cut by the Reserve Bank of India (RBI) at its monetary policy review meeting next week. The Reserve Bank is slated to announce its second bi- monthly policy on June 2 during which the central bank will take a call on interest rate taking into account of inflation and other economic parameters.
“Inflation is going to be lower than the RBI’s target. Fiscal policy is supportive and that (will have) implications for interest rates going forward,” Subramanian said. As far as inflation is concerned, a below normal monsoon has projected by the Indian Meteorological Department (IMD), which might impact food production leading price rise. Subramanian, however, admitted the fact that the ‘risk’ to inflation is there, but he expressed confidence that the Government would be able to contain price rise as it did during the previous financial year.
At present, the price situation is much better with Consumer Price Index (CPI) inflation down to 5 per cent and the Wholesale Price Index (WPI) remaining in the negative territory for past several months, he said. “CPI inflation is down at about 5 per cent, the latest reading and WPI inflation are in negative territory...The latest reading was of course (-)2.7 per cent,” he said, adding inflation was likely to remain at 5 to 5.5 per cent, as was projected by the Economic Survey.
Citing China’s example, he said that the country is buying dollars to build reserves and cutting its interest rates aggressively to make its currency more competitive and promote growth. “It is not that everything that China does should be imitated but that’s a lesson we need to learn from. Remember, China is now cutting interest rates quite aggressively to respond to its growth slowdown and that’s going to make its currency more competitive. So we need to respond accordingly,” he added.
Subramanian said the oil prices going forward will remain between $50-80 and there would not be much ‘wild swings’. “Overall inflation is down, inflation prospects are looking good. Substantial quantity and quality of fiscal consolidation and the external situation also are under reasonable control,” he said.
Meanwhile, Government needs to reconsider levy of one per cent additional tax by states over and above GST rate as it could make intra-state movement of goods expensive and hurt the ‘Make in India’ campaign, the CEA said on Tuesday. “Think of a good going from Gujarat to Tamil Nadu, crossing four states. The good would embody an additional tax of about 4-5 per cent, because it is 1 per cent every state. That might make it easier to import into Tamil Nadu from Bangkok,” Subramanian told reporters here.