New Delhi: Worries over inflation, which had recently crossed the 6% mark, seem to be receding with the think tank NCAER projecting a 5.3% price rise in 2007-08.
“On the price front, there is an expectation that the commodity price rise will be smaller in 2007 as compared to the high rates of increase seen in the last two years,” the National Council of Applied Economic Research (NCAER) said in its quarterly review of the economy.
Despite the inflation based on the Wholesale Price Index breaching the 6% level in February and March, the average growth in prices was 5.3% in 2006-07. The projections for the average inflation are the same for the current financial year.
While the “supply shocks” had triggered the price rise, the actual cereals stock (both rice and wheat) of 17.4 million tonnes with the government agencies in March was higher than the buffer stock norm of 16.2 million tonnes for March-end, NCAER said.
Last year the stock of wheat had touched a low of 2 million tonnes in April as against the norm of 4 million tonnes. “Therefore, a relatively higher stock of 5.4 million tonnes at the end of March-should be a sign of comfort,” it said.
It said, while worries about inflation are justified, the policy response should not inflict a higher burden on the farmers.
“The profitability of the agricultural sector could be dampened by this step. It will unnecessarily lengthen the sector’s recovery process from stagnation,” it said.
The general increase in the prices of agricultural commodities due to higher food and non-food demand also means higher incentives, which should lead to an increase in their supplies during 2007-08.
The NCAER said, two main weaknesses — mismatch between targets and actual output and systems of managing the food economy — needs to be handled.
“There is a clear need to re-examine the approach adopted in setting targets and raising the output of food grains and for managing the food economy, it is essential to reform the process of procurement, holding of stocks and running the Public Distribution System,” it said.
The double digit increase in the prices of primary articles is likely to ease in May. “The point to be noted is that surge in the price index of primary articles, particularly food, is not enduring and would be checked once supplies normalise”.
However, as the prospects for continued global economic growth appear strong, a surge in oil prices could be expected again, NCAER added.