Difficult to sustain high growth without curbing inflation: RBI

“Without bringing inflation down from the current level it will be difficult to sustain a high level of growth. This will require greater monetary-fiscal coordination and alleviation of supply constraints, particularly in agriculture,” Mohanty said in a speech at the Harvard Business School on Tuesday.

Inflation has remained stubbornly high near double-digit since January 2010. The headline inflation based on the wholesale price index was recorded at 9.78 percent in August, according to the latest official data. Food inflation was 8.84 percent for the week ended Sep 10.  

The RBI official said inflation would have to be brought down in the range of 4-6 percent to sustain high economic growth.   “Empirical evidence suggests that the threshold level of inflation is in the range of 4-6 percent,” he said.

Mohanty said Indian economy was expected to grow at around 8 percent during the current fiscal.  On growth prospects in the coming years, RBI official said the government targets 9 percent growth during the 12th Five Year Plan (2012-17). “This is challenging but not unattainable,” he said.

He pointed out that India achieved an average growth rate of about 9 percent during 2004-08, which was interrupted by the global financial crisis.
During 2009-11, the average economic growth has slowed to 7.8 percent.

“Growth will have to be raised by an additional percentage point per annum, which is challenging because it will require a conducive global environment and policy reforms at home,” Mohanty said.