Montek hopes headline inflation will decline by September

"With better macro management of the growing economy and an anticipated good monsoon, we hope inflation will come down to reasonable levels by September-October," Ahluwalia told reporters on the margins of a meeting of the plan panel here.

Admitting that the headline inflation was higher than the original target of six percent set for March-end, Ahluwalia said the government could not contain the inflationary pressures and missed the target due to rising world food prices and other global factors such as crude oil prices.

“While making forecast on the rate of inflation, which is subject to external factors, we did not anticipate that the global food prices would go up and other factors such as the impact of rising crude oil prices on efforts to curb headline inflation,” Ahluwalia pointed out.

As a measurement of price inflation, headline inflation includes changes in the price of food and energy and reflects the changes in the cost of living. According to the official data released Thursday, food inflation rose to a two-month high at 9.01 percent for the week ended May 28 from 8.06 percent the week before, as prices of essential goods like fruits, meat, milk and onions increased.

The persistently high inflation is expected to result in another rate hike from the Reserve Bank of India (RBI) when it conducts a mid-quarterly review of the monetary policy June 16.

Ahluwalia said "For that financing will be a big constraint and one of the proposals that had been made was that we should make regulatory changes that will enable infrastructure debt funds to be set so that investors abroad wishing to finance infrastructure can invest in these funds and these funds can lend on long term to infrastructure projects", he said

He said the proposal is currently being examined by the Finance Ministry and hoped for a decision soon. On the size of the fund, Ahluwalia said in his earlier recommendation he had suggested that a 10bn USD fund be set up. "But there doesn't have to be just one fund, if the structure is attractive, we can have more funds", he said.

To a query on fuel linkages, "as far as coal is concerned, power is concerned they need coal, we should maximise domestic production that is possible and whatever extra is needed should be imported, so we need mechanism where best domestic production is possible and surplus to be met by imported and this should be smoothly worked out".

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