Ambitious talk about double-digit economic growth has been in the air this year. That’s what India should be aiming at in 2012-17, Prime Minister Manmohan Singh said last month. But there is a double-digit bump that will need immediate attention from the managers of the Indian economy.
The wholesale price inflation data for March will be released on Thursday. It is very likely that we will be told that prices are growing at double digits compared with a year ago. Inflation is no longer just the result of a poor monsoon in 2009. Strong effective demand and exploding fiscal deficits are also important parts of the story.
Headline inflation should cool off later this year as the base effect comes into play, but there can be no denying that high inflation will be a persistent problem unless there is a credible policy response. The fiscal correction will be gradual at best, and hence the Reserve Bank of India will have to take the lead by raising interest rates in the monetary policy that is due on 20 April.