Inflation to moderate in coming months

SURVEY OF THE INDIAN ECONOMY: Price rise pegged between 6.5-7% by March end

India’s headline inflation is expected to fall to 6.5 to 7 per cent by March this year and moderate further in coming months, said Economic Survey 2011-12, but suggested vigilance on rising crude prices having a potential to fan inflation further.

“The best course of action would be to persist with regular step-adjustment of domestic energy prices…,” the survey, which was tabled by Finance Minister Pranab Mukherjee in Parliament, said.

The wholesale price inflation, which remained persistently high and relatively sticky at around 9 per cent during the whole 2011, eased lately and printed below 7 per cent for February this year. The major contributory factors to headline inflation in the current financial year were high commodity prices, especially crude in the international market and soaring primary article prices driven by vegetables, eggs, meat and fish back home due to changing dietary pattern of consumers, especially the rural ones.

Food inflation

Food inflation dropped 6.07 per cent in February this year, compared to a high of 20 per cent in 2010, but crude prices remained volatile in fiscal 2011-12 due to upheaval in major oil exporting countries coupled with increasing uncertainty in global economic environment, putting further pressure on inflation.

The average price of the Indian basket of crude oil too rose close to $110 per barrel in 2011, up from $85 per barrel in the previous year. The Reserve Bank of India too said in its mid-quarter Thursday review that the upside risk to inflation has increased from rising crude prices among other things.

After a comparatively stable inflationary period in the first part of 2000, the average headline WPI inflation started to rise in 2008-09 and has persisted since then with the main pressure coming from food and fuel.

Meanwhile economic growth is expected to rebound to 7.6 per cent in 2012-13 on the back of softening inflation and better industrial production, enabling it to play an active role on the world stage and influencing international trade, capital flows and governance of global financial institutions, the Economic Survey 2011-12 said Thursday.

The survey projected 8.6 percent expansion in the country’s gross domestic product (GDP) in 2013-14.

“The economic growth is expected to remain at 7.6 percent, plus or minus 0.25 percent, in 2012-13 and it will improve further to 8.6 percent in 2013-14,” said Chief Economic Advisor Kaushik Basu.