Mumbai: The Wholesale Price Index rose 9.90% in March from a year earlier, compared with February’s annual rise of 9.89%. The March figure was not as steep as expected, but still remains the highest since October 2008.
Saumitra Chaudhuri, a member of the Planning Commission, India’s apex planning body, said in an interview that he expects inflation to slide to 4-5% in the new fiscal year. He also spoke about likely policy moves by the Reserve Bank of India (RBI), which unveils its monetary policy statement on 20 April. Edited excerpts:
How do you assess the inflation figures? Do you think RBI needs to spike the interest rate further even though we are just 0.1% short of double-digit inflation?
I was hoping (for) something slightly lower than 9.9%. If you compare early numbers, as per my assessment, it turns out that primary food inflation is lower than what I had expected. But in case of manufacturing goods, it is higher. The difference would be on account of sugar. Sugar prices have fallen in March; I do not know how much of it is reflected in the March index, but it has fallen a lot and it’s in April that will have a major effect.
Policy talk: Planning Commission member Saumitra Chaudhuri. Bloomberg
Basically 9.9% is peak and it’s on the way down. Primary food (price inflation) is coming off, sugar is coming off. As far as other manufacturing goods are concerned, there is a price recovery—partly because in the last year this time, there had been (a) decline in prices and as industrial conditions have improved, the prices of certain other manufactured goods (have) slightly recovered... Even for the month of February, even without sugar, manufactured prices other than sugar have shown an improvement.
As far as (interest) rate is concerned, I have been saying this for quite some time that the monetary stance we have today is (an) exceptional stance (taken in) exceptional circumstances... Those circumstances have passed and it need(s) to move to neutral or a normal monetary policy... I believe a normal or neutral policy in our context is something that could generate some overnight call rate of between 4-5%.
Even if we take (the) lower estimate of 4%, we will need some amount of normalization before you come there. So any further increases, though you may see this in the light of inflation, would basically be a normalizing exercise and once the base also levels off, which will happen in the summer of 2010, then we can say to what extent in a sense there is price pressure because of growth.
Some of the pressure that you have seen is simply because last year’s base was highly repressed and we are only getting recovery from that.
Prices are being managed by steel companies, auto companies and auto ancillary companies, where production capacities are more or less fully utilized. There is pressure on global commodity prices as well. So what is your best estimate of inflation for the fiscal 2011? Some economists place it between 6% and 7%, in which case you should expect a fairly stiff rate hike.
At 6-7% (inflation), I do not buy that argument. I think we would have 4-5% this year unless exceptional situations intervene—like runaway prices in commodities or something like that, which I do not see happening.
International economy is still stressed. India and China are doing quite well and some other Asian economies have recovered strongly. But the world as a whole is still not doing very well.
It’s hard to believe that when you have flat growth in most Western economies, commodity prices other than oil (are rising). Oil is a peculiar animal; commodity prices can go through the roof. I find that hard to believe unless recovery comes in very strong. We will know that later in this year.
I do not believe that we are going to end 2010-11 with inflation significantly more than 4-5%, which has been a target. I think that should continue to be our target. Whereas there is going to be any monetary policy beyond normalization is a call that has to be taken and I am sure RBI will take that call.