No black and white answers in economics on inflation: Kaushik Basu

“I do expect December inflation to be a fairly reasonable decline. But till then it will remain choppy,” chief economic adviser Kaushik Basu commented

New Delhi: Terming near double-digit inflation as ‘uncomfortable’, chief economic adviser Kaushik Basu on Wednesday said there is no black and white answer in economics and the Reserve Bank of India (RBI) will have to balance containing price rise and promoting growth at its review of credit policy on Friday, reports PTI.

“There is no black and white answer... RBI will have to balance out these two—controlling inflation and not dampening growth too much,” Mr Basu who is chief economic adviser to the finance ministry said.

He said inflation is likely to remain elevated till end of the calendar year and only start moderating after December.

“I do expect December inflation to be a fairly reasonable decline. But till then it will remain choppy,” he said.

His comments came after inflation climbed to 13-month high of 9.78% in August, from 9.22% in July, on the back of expensive food and manufactured items.

The RBI) has already hiked its key-policy rates 11 times since March, 2010 to curb demand side inflation. It is scheduled to announce its mid-quarterly review of credit policy on 16th September.

Department of Economic Affairs secretary R Gopalan said the RBI’s monetary tightening had had only a limited success.

The central bank has to ‘change from being accommodative to one of aggressively combating inflation,” he added.

“The benchmark short-term policy rate was raised in quick succession from March 2010. While this tightening has been able to anchor inflationary expectation up to a point it has had limited success in lowering inflation rates to acceptable levels,” Mr Gopalan said.

This is also the ninth consecutive month when inflation has remained above the 9% mark.

While the sustained inflation is likely to put pressure on the central bank to continue with its tight monetary policy, there is concern on the growth front.

Industrial production fell to a 21-month low of 3.3% in July. Besides, gross domestic product (GDP) growth also moderated to 7.7% in April-June period, the lowest in six quarters.

India Inc and experts have blamed the high interest rates for increasing the cost of borrowing and said this has put pressure on fresh investments and hindered growth.

Most economists, however, said that as inflation remain at an elevated level the central bank is likely to go for another rate hike at its mid-quarterly review of credit policy on 16th September.

“No doubt the RBI is in a dilemma but inflation control remains its prime agenda and so we expect it to go for another hike of 25 basis points on 16th September,” Crisil chief economist DK Joshi said.

While rate hikes have not shown the intended effect, inflation would have been much more if RBI had not resorted to a monetary tightening, Mr Joshi said.

Assocham said rate hikes by RBI had ‘limited success’ in curbing inflation as global commodity and oil prices have been remained elevated due to easy money policies of developed nations that boosted liquidity in global markets.

“Any rate high by RBI at this juncture will seriously impact the growth which is already showing signs of fatigue...

Assocham calls for a pause (in the hikes),” it said in a statement.

Standard Chartered senior economist Anubhuti Sahay said there are not enough policies to ease supply side pressure and inflation is expected to remain high in near future.

However, she said that the moderation in growth ‘is not yet broad-based’.

She felt RBI is likely to go in for another hike of 25 basis points in its key-policy rates. Before the interest rates peak, there could be yet another revision in October, Ms Sahay said.

Besides, the local factors, high international commodity prices are adding to the problem.

Weakening of rupee against the US dollar is also a bad news for the policy makers grappling with inflation.

“The recent depreciation of the rupee relative to the US dollar would exert pressure on the prices of imported items...

Accordingly, we expect the RBI to persist with monetary tightening and hike the repo rate by 25 basis points in the upcoming policy review, despite the sluggish industrial growth,” ICRA economist Aditi Nayar said.

India imports around three quarters of its oil and gas from abroad and international commodity prices continue to remain elevated, despite the crisis in US and Eurozone.

Deloitte, Haskins & Sells director Anis Chakravarty said that the tightening has not the desired impact the apex bank should halt rate hikes.

“We are at a stage where monetary policy is not having the desired impact. The dilemma with RBI is not only to adjust between growth and inflation but also whether its policy is having the desired impact and what is the alternative,” Mr Chakravarty said.

The monetary tightening is getting reflected in expensive purchases, interest rates and other aspects of daily life, he added.

User

ADB lowers India’s growth rate to 7.9% for current fiscal

“Despite robust overall growth for the year through March 2011, economic momentum slowed reflecting weakening industrial activity and investment,” the ADB’s ‘Asian Development Outlook 2011 Update’ said

New Delhi: Asian Development Bank (ADB) on Wednesday trimmed growth forecast for India to 7.9% for the current fiscal, from 8.2%, in the wake of subdued growth of major world economies and rising crude oil prices, reports PTI.

The ADB’s ‘Asian Development Outlook 2011 Update’, which was released on Wednesday, has also raised the March 2012 inflation forecast to 8.5%, from 7.8% earlier.

ADB’s growth projection is lower than that of the Indian government, which expects the gross domestic product (GDP) to expand at 8.5%.

The revision in the forecast comes within five months of the Asian Development Outlook (ADO) 2011 in April which projected India’s growth at 8.2% this fiscal.

“Despite robust overall growth for the year through March 2011, economic momentum slowed reflecting weakening industrial activity and investment,” the update said.

Growth in most advanced economies has declined in the second quarter of 2011 and emerging markets are witnessing a combination of moderation in growth and rising inflation.

The recent downgrade of US Sovereign ratings by S&P and lengthening shadow of the Eurozone crisis all over the market in the world has become a matter of concern.

The ADB report also revised downward India’s GDP growth for the next fiscal (2012-13) to 8.3% from 8.8% “due to longer monetary tightening cycle and higher policy rate hikes, than expected earlier.”

In its bid to tame inflation, the Reserve Bank of India (RBI) has been hiking interest rates since March 2010 and is again scheduled to review its monetary policy on Friday. The overall inflation in August stood at 9.78%, much higher than the comfort level of 5%-6%.

Talking about rate of price rise, the ADB’s update said inflation is expected to remain elevated in the first half of FY11-12 for a variety of reasons, like hikes in fuel prices and upward revision of minimum support prices.

“Given the RBI’s commitment to battle persistent high inflation there will likely be further monetary tightening in the coming months of FY11-12 until there is credible evidence of inflation trending to the RBI’s target range,” ADB said.

The RBI has projected March-end inflation at 7%.

The report, however, said that inflation should show a downward trend from the latter part of FY11-12 because of likely stabilisation of global commodity prices and other supply-side measures of the government.

It said that inflation would remain a concern for economies in Asia in the coming months and there will be pressure on policy makers to manage price rise given the slowdown in global economy.

As per the update report, Asia (excluding Japan) is projected to grow at 7.5%, lower than the earlier estimate of 7.7%.

It also raised the region’s Developing Asia—made up of 45 countries in Central Asia, East Asia, South Asia, Southeast Asia and the Pacific—inflation forecast to 5.8% this year, from its April estimate of 5.3%.

“Inflation should cool in 2012 to 4.6% as commodity prices recede but central banks will need to keep a close watch and may need to take remedial action,” it said.

On capital inflows, ADB said that it may cover current account deficit given the investor interest in India's strong growth prospects. It further said that FDI inflows would be come into the oil and gas, metal, and telecom sectors.

User

Mahindra’s maiden aircraft makes successful test-flight

The five-seater all-metal aircraft, powered by a Lycoming IO-540 engine, completed a 45-minute flight on 1st September. The prototype was built over a 10-month period by a team at GippsAero, a Mahindra Aerospace subsidiary in Australia, at their facilities in Melbourne

Mumbai: The Mahindra Group on Wednesday said it has completed successfully the test-flight of its maiden aircraft NM5, which was developed in collaboration with the government-run National Aeronautical Laboratories (NAL), reports PTI.

The five-seater all-metal aircraft, powered by a Lycoming IO-540 engine, completed a 45-minute flight on 1st September, Mahindra Aerospace said in a release here.

“It gives us great pride to see our first indigenous effort, the NM5, complete its maiden flight. This project is part of our goal to provide transportation and connectivity solutions to communities,” Mahindra Group vice-chairman and managing director Anand Mahindra said in the release.

The NM5 complements Mahindra Aerospace’s growing family of light utility aircraft that are designed to meet the latest global standards and can operate in bare minimum environments, the company said.

Engineers from CSIR, a top national R&D agency, NAL and Mahindra Aerospace spent close to three years designing the new aircraft using cutting-edge design and analysis tools.

The prototype was built over a 10-month period by a team at GippsAero, a Mahindra Aerospace subsidiary in Australia, at their facilities in Melbourne. Flight testing is being performed at GippsAero, it said.

Developmental flight testing and evaluations are continuing, with the ultimate aim of achieving certification in keeping with international regulatory standards, followed by a global sales and marketing programme, the company said.

With an investment commitment in excess of $100 million, Mahindra Aerospace has started work on a major aero-structures manufacturing facility in Bangalore.

User

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)