India now out of high inflation: FM

 India is currently out of high inflation phase but rising rural wages and inadequate measures to improve food supply will fan price pressures, Finance Minister Pranab Mukherjee warned on Wednesday.

Changing food habits with rising income coupled with shortages in the supplies of pulses, vegetables and protein-based items have kept food the headline inflation above 9 per cent in 2011 and prompted central bank to raise rates by 13 times.

 “Hopefully we are now out of this high inflationary phase, assisted by what appear to be two back-to-back bumper agricultural harvests,” Mukherjee said at a conference. India's headline inflation eased to 7.47per cent in December from 9.11 per cent in November on the back of sharp decline in food prices from a year ago and favourable base effect.

 India's food grain output is estimated to rise by close to 8 per cent to 250 million tonnes in 2011-12 (Jul-Jun). But risks to inflation remain due to rising rural wages and demand after the roll-out of National Rural Employment Guarantee Scheme and successive hikes in minimum support price (MSP) for grains.

 “Sustained high economic growth in recent past has led to improvements in purchasing power in both rural and urban areas,” Mukherjee said. The rise in wages was as high as 42 per cent in Andhra Pradesh and 33 per cent in Odhisa while it rose by 19-20 per cent in economically weaker states like Bihar and Uttar Pradesh.

“This has increased demand for certain goods and services, which has translated into persistent high inflationary pressures for those goods in the economy,” he said.

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