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Rangarajan stresses need to curb inflation

Rangarajan stresses need to curb inflation
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First Published: Thu, Jun 02 2011. 10 31 PM IST
Updated: Thu, Jun 02 2011. 10 31 PM IST
Mumbai: India must use all measures to rein in inflation and such steps do not necessarily harm growth, said C. Rangarajan, chairman of the Prime Minister’s economic advisory council.
“We must use all of our policy instruments to bring down the current inflation and reanchor inflationary expectations to the 4-5% comfort zone,” Rangarajan said in Mumbai on Thursday. “We must remain committed to maintain inflation at a low level. High growth does not warrant a higher level of inflation.”
Although wholesale price-based inflation moderated to 8.66% in April from 9% in March, it’s still high and much above the Reserve Bank of India’s comfort level.
In its annual policy, RBI said it was committed to lowering the inflation rate even though this may slow growth in the short term. RBI recently raised the policy rate by 0.5 percentage point to 7.25%, a departure from its usual practice of a 0.25 percentage point increase.
“I do not think that by taking action on inflation, we are necessarily hurting growth,” Rangarajan told reporters.
While RBI expects growth in fiscal 2012 of around 8%, Rangarajan put it at 8.5% and said it could expand as fast as 9-9.5%. But “pushing the economy beyond its capacity” would result in “strong inflationary pressures re-emerging.”
The government has pegged growth at 9%, although finance ministry officials, including minister Pranab Mukherjee, have said this may not be achievable.
Rangarajan argued that India can continue to grow at 9% rate on a sustainable basis. This is indicated by the savings rate having crossed 34% of gross domestic product (GDP) and the investment rate having exceeded 36% of GDP. However, two elements—low yields from the farm economy and inadequate physical infrastructure, with electricity being key—have the potential to crimp growth.
“We have large science and technology establishments for agricultural research,” Rangarajan said. “But the results in terms of productivity gains leave much to be desired.”
Agriculture is vital for food security and farm income and must respond to the shift in demand on the part of consumers, Rangarajan said.
anup.r@livemint.com
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First Published: Thu, Jun 02 2011. 10 31 PM IST