Wholesale price inflation (WPI) in March rose 8.98%, much higher than what most analysts had expected. The January inflation level, too, has been revised upwards from 8.2% to 9.4%. Typically, inflation figures always rise after the provisional figures are revised, sometimes by a full percentage point, or even more.

So when the March inflation figures get revised, it could be in double digits—some 450 basis points higher than what the Indian central bank had envisaged a year ago. One basis point is one-hundredth of a percentage point.

The Reserve Bank of India’s (RBI) original inflation estimate for fiscal 2011, made in April 2010, was 5.5%. After two revisions, the latest being in March, it was raised to 8%.

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The annual average inflation figure for fiscal 2011 now works out to 9.43%, the highest since 1995, and it could be even higher when provisional figures of February and March are revised.

The government, till recently, was downplaying the inflation factor; making lower projections, and not taking any fiscal measure to tackle it. The Indian central bank, too, has not done enough to rein in the rising inflation.

Has its tolerance level for inflation gone up? Or, is it a failure to understand and appreciate the threat of inflation? In its mid-quarter December review, RBI did not raise its policy rate and preferred to wait and watch the inflation trajectory as it had thought that it would come down; but it actually rose from 8.08% in November to 9.41% in December (the December review was taken before the month’s inflation figure was released).

And in March, RBI raised its year-end inflation projection from 7% to 8%, the second revision in three months, but still it’s wide of the mark. There have not been too many occasions when RBI has missed its inflation projection, despite raising it twice.

Last Friday, after the inflation figures were released, Montek Singh Ahluwalia, deputy chairman of the Planning Commission, said India may not have 9% economic growth in fiscal 2012, and even to stay 8.6% growth in the fiscal year the industry will have to do much better. A couple of days earlier, finance minister Pranab Mukherjee, in an interview with a television channel, had said the government would have to control price rise “but we have to keep in mind that if we satisfy ourselves with much less GDP (gross domestic product) growth, it will be easier for us to control price rise from the demand side". (In his February budget, Mukherjee spoke about 9% growth in fiscal 2012.)

RBI deputy governor Subir Gokarn, too, in a recent Mumbai seminar, told corporate chiefs that they might have to bear some more pain, hinting at possible rate hikes to contain inflation.

What’s baffling is RBI’s continuous denial mode. Instead of accepting the fact that inflation is a serious issue and it needs to be tackled appropriately, the central bank has so far chosen to take baby steps of raising interest rates 25 basis points at a time. As a result of this, the policy rate in India, despite eight hikes between March 2010 and now, has all along remained negative—lower than the inflation rate.

With the last rate hike in March, the repo rate, or the rate at which RBI infuses liquidity into the system (or lends to banks), has gone up to 6.75%, and the reverse repo rate, or the rate at which the banking regulator sucks out liquidity (or borrows from banks), to 5.75%. In May 2008, when the inflation rate was 8.9%, RBI had raised its repo rate to 7.75% and cash reserve ratio (CRR), or the portion of deposits that commercial banks need to keep with the central bank, to 8.25%. Subsequently, in August 2008, when inflation rose further to 12.4%, both the policy rate as well as CRR were raised to 9% each.

Initially, food inflation was blamed for the rise in WPI, and the protein factor was made the villain of the piece. We were told that with more cash in their pockets, thanks to the government’s income-generation schemes, people in rural India are eating more eggs and drinking milk, and only monetary policy measures cannot address such issues. But even after the food inflation spilled over to other sectors and caused a spike in generalized inflation, RBI declined to be more aggressive in its rate-raising action.

In February, food inflation came down from 15.7% to 10.65%, but the so-called core inflation, or non-food manufacturing inflation, rose sharply from 4.8% in January to 6.1%. Food inflation dropped further to 9.47% in March and non-food manufacturing inflation rose to a two-and-a-half year of 7.08%.

RBI’s last monetary policy statement in March had said the central bank would “continue to rein in demand-side inflationary pressures while minimizing risks to growth". It also committed to continue with its anti-inflationary stance.

Does this mean that it will go for a higher dose of rate hike in the first week of May when it announces the annual monetary policy for 2012? I wouldn’t think so.

The rates will possibly go up 50-75 basis points during the year in two to three phases and the central bank is unlikely to show aggression in raising rates as its concerns for growth are also growing.

The factory output figures are showing softness with the industrial production index growing 3.6% year-on-year in February, below the revised 3.9% in January and, at least, 150 basis points lower than analysts’ expectations.

The decline of capital goods index continued—18.4% fall in February after 18.4% drop in January—signalling weak investment climate.

RBI has missed the bus. It did not show aggression when it should have and now it can’t afford to push hard.

Tamal Bandyopadhyay keeps a close eye on all things banking from his perch as Mint’s deputy managing editor in Mumbai. Your comments are welcome at bankerstrust@livemint.com