Govt should use all policy instruments to tame inflation

New Delhi: Prime Minister’s economic advisory panel wants the government to utilise all available policy options to bring down inflation to an acceptable level of 4-5 per cent from 8.31 per cent currently.

“We must use all our policy instruments to bring down the current inflation and re-anchor the inflationary expectations to the four-or-five-per cent comfort zone”, C. Rangarajan, who heads the Prime Minister’s Economic Advisory Council said.

Elaborating on the trade-off between country’s economic growth and its rate of price rise, Mr. Rangarajan said an environment of reasonable price stability is considered “conducive” to economic growth.

Pointing out that last four weeks have witnessed a rise in vegetable prices, one of the primary causes of food inflation this year, Mr. Rangarajan said, “Inflation is expected to come down in the coming weeks”.

While mentioning the role of supply-side disturbances in contributing to the price rise, he said such a situation warrants monetary action pertaining to liquidity and interest rates, else inflation could spread to the manufacturing sector.

Mr. Rangarajan also cautioned on the adverse impact of high inflation on India’s Gross Domestic Product (GDP), saying persistent high prices can distort the motives for investment, thereby undermining growth.

Food inflation stood at 9.5 per cent for the week ended March 19 amid easing of pulses prices, even as fruits and protein-based items remained costly. Food inflation stood at 20.18 per cent in the comparable period last year.

Headline inflation in the country has remained above 8 per cent since February, 2010. Overall inflation in February this year stood at 8.31 per cent.

Meanwhile, non-food inflation was up by 26.18 per cent year-on-year.

Policymakers have been struggling to manage the trade-off between growth and inflation, with the RBI hiking its short-term monetary policy rates, repo (lending) and reverse repo (borrowing) rates eight times since March 2010.

The Reserve Bank also raised its inflation projection to 8 per cent for March-end against 7 per cent estimated earlier.