New Delhi: Projecting a moderation in inflation despite the hike in petrol and diesel prices, the pre-budget Economic Survey today cautioned against the pressures from rising foreign funds and global commodity price movement.
Even though the fuel price hike this month would add 19 basis points, inflation rate would remain lower at 4.4% during the current fiscal, compared to 5.4% in the previous year, mainly due to policy measures taken in the last 18 months, the survey said.
The survey, tabled in Parliament, however, said the government would have to maintain vigil on this front as price management is a complex task, more so because of the pressures from rising capital inflows and global commodity price movement, particularly oil that breached the 100 dollar a barrel mark.
Supply management is also critical to stabilising inflation expectations, the economic report card said.
In this regard, the survey said the reduction in tariffs on non-agricultural products has played an important role in bringing Indian inflation rate in line with the global rate and asked for the trend to continue.
So far as agriculture items are concerned, prices of essential and other items will play a critical role as poverty has come down and per capita income has risen, the survey said.
But tariffs on farm products are high and modernization of Indian agriculture and agro-processing is going at a slow pace, which could also affect inflation.
It is particularly so because food still occupies a large portion of our consumption basket, the survey said.
While removing constraints on farm modernisation and urban land supply will lower inflation, further development of India’s debt and currency markets will enhance India’s investment climate.
These steps will bridge the gap between inflation and real interest rates, the survey said.