High inflation – a major concern for Govt in 2011

New Delhi: The year 2011 saw the government grappling with high inflation which has grave political fall outs, but found success in bringing down food inflation to less than one per cent during the fag end of the year. However, concerns still remain on prices of commodities, like oil, which impacts inflation in the manufacturing sector.

Various policies and initiatives yielded fruits on food inflation front which had touched a worrying 19 per cent in early January this year. It finally plunged to a six-year low of 0.4 per cent in mid-December. But the main challenge is on headline inflation, which factors in manufactured products, fuel and non-food primary articles, besides food items.

From January, the headline inflation stood at 9.47 per cent, it has declined to only 9.11 per cent in November, the latest available figure. In between it has not moved below the 9 per cent mark and even touched 10 per cent in September as per the revised figures.

Prime Minister Manmohan Singh had in 2010 pegged headline inflation projection at 5.5 per cent for March 2011 though it ended up at 9.68 per cent.

Manufactured items, constituting over 75 per cent of the Wholesale Price Index (WPI) basket which is the benchmark inflation index in India, remain close to 8 per cent.

The government and RBI foresee the inflation now moving downwards after peaking. They have pegged March 2012 headline inflation at 7 per cent.

Experts believe the RBI will wait for some more time, till the second quarter of 2012, before reversing the rates which it raised 13 times since March, 2010.

This measure has helped contain inflation though probably impacting economic growth marginally. "We expect that the RBI may keep the policy rate unchanged in Q4 2011-12 led by the concern that the weakness in the rupee may exacerbate inflationary pressures in the economy, and embark on monetary easing in Q1 2012-13, once inflation moderates below 7 per cent," Managing Director of ratings agency ICRA Naresh Takkar said.

Similar views were expressed by global agencies as well. "We expect the RBI to start cutting policy rates in Q-2 2012, as growth is likely to deteriorate in the next few quarters," Nomura said in its latest issue of `Asia Economic Alert`.

Before the latest decline in food inflation, the common man bore the brunt just like in 2010. The severity could be gauged only when the prices of onion, which shot up to Rs 70-80 a kg, is juxtaposed with the average daily wages of India`s nearly 300 million informal sector workers — Rs 100.

The government banned onion exports for a fortnight in September. High onion prices has played a role in the defeat of Janata Party in the 1980 general elections and the rout of BJP in the Delhi assembly elections in 1998.

A good monsoon, however, emboldened the Centre to lift the four-year old export ban on wheat, a primary commodity which has seen negative inflation in the last quarter of the current calendar year.