Inflation will come down to 7 pc in March 2012

"One of the reasons for inflation to settle down at around seven per cent in March 2012 is dwindling food inflation which has come down to 4.3 per cent at the beginning of December this year," he said on the sidelines of a Bangalore Chamber of Industry and Commerce function.

The PMEAC chairman said food inflation has primarily been on a declining trend, falling from 11.81 per cent in October to 4.35 per cent in early Dec 2011 and added this would result in decline in headline inflation (in wholesale price index).

He said high growth does not warrant a higher level of inflation and so the country must use policy instruments - interventions in food grains market, monetary and fiscal policies - to bring down current inflation and re-anchor inflationary expectations to the five per cent comfort zone.

On depreciation of the Rupee, he said the pressure on the currency is a result of a `mismatch` between Current Account Deficit and capital inflows. India should reduce Rupee volatility in foreign exchange market through RBI intervention and encourage capital inflows, Rangarajan said.

"A number of policy making decisions, including increasing investment limit of Foreign Institutional Investors have been taken to encourage capital inflows in the country," he said.

To a query, Rangarajan said decontrol of diesel is a natural corollary to decontrol of petrol. "You cannot decontrol one petroleum product and not the other," he said.

However, the timing is important and it has to be done when inflation shows definite signs of decline, he said.

For quite some time private sector retailers like Reliance and Essar have been demanding decontrol of diesel which would it make viable for them to operate their outlets.