Inflation below 5% in second half of 20103 min read . Updated: 16 Mar 2010, 10:40 PM IST
Inflation below 5% in second half of 2010
Inflation below 5% in second half of 2010
New Delhi: Chief economic adviser Kaushik Basu expects inflation to start easing in April and fall to below 5% in the second half of the year. India’s monthly headline inflation touched a 16-month high of 9.89% in February. Basu is betting on the monsoon and oil prices remaining normal in making his sub-5% inflation forecast for the second half of the year. Calculations may go awry if a drought hits, he said in an interview. Edited excerpts:
Inflation is just shy of double digits at this point in time. What is your own assessment as far as inflation is concerned?
So the overall picture is not as alarming as it appears at first sight when you look at 9.89%. It is high, it is not something that you can live with for too long. One more month, and we are expecting the inflation to be roughly where you are seeing it right now.
So in double digits, is that what you are expecting?
I do not know. It is in the vicinity of what you’ve seen. It could be a little higher, it could be a little less... I would expect March to be roughly the same kind of inflation that you have seen, begins to slow down a little bit from April, and by May-June slows down quite a bit.
Slows to what? Where would you see inflation in the second half of the calendar year for instance?
Second half of the calendar year I would expect it to be below 5%, so it should cool down completely. From April, I would expect the inflation figure to begin to go down but it is still inflation, it is still high. But by the second half, it should go down considerably.
So our calculation for the next year, which puts inflation down to the full year’s inflation at 4%, I am sticking to that. That is realistic enough.
How concerned are you at this point in time, because you are betting on a good winter harvest and a normal monsoon, you are betting on food prices easing considerably. How concerned are you that some of these could go the other way and that could turn your projection that way as well?
We are not betting on anything being excessively good. We have just done our calculations with things being normal—normal monsoon, international situation being normal, oil prices normal.
What is normal for oil prices, we are already at $79 per barrel?
Yes, and if you take the market as being a good predictor of what is going to happen, the one-year futures are at about $83 (around Rs3,785) per barrel....which means the market is not anticipating a huge increase in oil prices. So if you go by the market, then oil prices are going to rise just a tad bit.
If it’s a drought or a huge international second dip (recession) or something takes place, of course, some calculations would go awry. But our calculations are based on roughly normal situations—8.5% growth and 4% inflation.
Are you confident of doing 8% plus (economic growth) in Q4?
One of the things you shouldn’t do is to make a forecast too close to something that the market will see. I think we are going to cross 8.5% in Q4, which means the 8.5% that we are predicting next year, we should actually get it for five quarters, i.e., the last quarter of this year and into next year.
You will see this very soon because we are already into it. But there are two reasons why this is not a number just being pulled out of thin air. Two reasons why 8.5% being crossed in Q4 seems reasonable are because we have got some data coming in manufacturing, which is doing very well and showing very robust growth. Within manufacturing, there is the capital goods sector which is usually a messenger of growth, which is doing astonishingly well. So important sectors do extremely well. Services, compared to India’s usual performance, is not quite there, but still going very well, and close to 10%.
I would expect services to pick up a little bit. We were expecting the biggest hit on agriculture last year. Our whole year’s calculation is 0.2 negative growth, of which Q3 was -2.8. So that took the shock in the face. We expect Q4 to be much better. Manufacturing doing tremendously well, services doing reasonably well and could do better. So 8.5% is not unrealistic.