PM Panel sees RBI reining in rising prices

“One was expecting some decline in prices particularly during November and December. There may be some seasonal decline in December. If it is not happening then there may be some early action on the part of Reserve Bank,” Rangarajan told reporters here. Early this month, Rangarajan had said RBI may start sucking out money from the system to combat inflation depending on how food prices move in December.

The annual rate of food inflation rose to 19.05 per cent for the week ended November 28 2009. Rangarajan said “It is true that food inflation is due to the supply-side issue. But there is also serious shortage of food. We must ensure that the overall monetary growth and demand is under control.”To that extent, he said the monetary policy had a role to play. But, by and large, efforts must be made to ensure the supply or the stocks also get increased.

“If inflationary pressure persists for a long time it can fuel inflationary expectations and monetary policy will have to take a nuanced view on this,” RBI Governor had said this week. Rangarajan also said backed by industrial and service sectors, the country’s economic growth is expected to be about 7 per cent this year against the estimated 6.5 per cent.

“It clearly indicates that the industrial needs are picking up and the economy is moving towards higher growth path. Therefore, I believe the growth rate of economy over the year will be around 7 per cent, which we had earlier estimated to be around 6.5 per cent,” the PMEAC Chairman said.

The Indian economy clocked a suprisingly high quarterly growth of 7.9 per cent, beating all estimates. “I believe both industrial and service sectors will go strong,” he said. India’s factory production expanded by 10.3 per cent in October fuelling hopes that it would power the economy ahead.

If the trend continues for the next three to four months, then the overall growth rate of the manufacturing sector would be high this year, he added.