India needs stronger action to tame inflation: Rangarajan

India needs stronger action to tame inflation: Rangarajan

New Delhi: India needs to take stronger action - both fiscal and monetary - to tame inflation, the Prime Minister’s Economic Advisory Council (PMEAC) chairman C. Rangarajan said on Tuesday.

Earlier, India’s headline inflation accelerated faster than expected to 9.06% in May, driven by higher manufactured goods prices, government data showed on Tuesday.

In the backdrop of the RBI’s tight monetary policy and high inflation, Rangarajan said India’s economic growth in the 2011-12 fiscal is likely to be about 8.5%, lower than the budget projection.

“I believe (it would be closer to) 8.5%," he said at an Organisation for Economic Cooperation and Development (OECD) event.

Finance minister Pranab Mukherjee in his budget speech had pegged economic growth for 2011-12 at 9%.However, the Reserve Bank of India (RBI), in its monetary policy in May, said that GDP growth during 2011-12 would be only around 8%.

The PMEAC chairman, however, exuded confidence that India has the potential to clock GDP growth of 9% in the medium term.

“... Potential (for Indian economy) to grow at 9% exists," he added.

Mukherjee, too, said on Monday that the growth drivers of the country were intact, as the government aims at GDP growth of 9-9.5% during the 12th Five-Year Plan, starting April 2012.

The RBI has hiked key policy rates nine times since March 2010, in a bid to tame inflation, which was over 9% in May. The central bank is scheduled to come out with a mid-term monetary policy review on 16 June.

On the performance of the economy in 2011-12, he said there may be some slowdown in agricultural growth, but the expansion in the industrial and services sectors is likely to be higher year-on-year.

The 8.5% annual growth in 2010-11 was backed by robust numbers from the agriculture sector.

Agriculture and allied sectors grew by 6.6% during the fiscal, as against a meagre 0.4% in the previous year.

The growth of services, including banking and insurance, improved to 9.9% in 2010-11 from 9.2% in the previous fiscal, while manufacturing sector growth slowed down to 8.3%.