Managing inflationary risk biggest challenge

Coimbatore: Admitting that inflation triggered by foodgrain price rise did not moderate as expected by the government, C Rangarajan, Chairman, Economic Advisory Council to the Prime Minister, today said managing inflationary risk was the biggest challenge in the short run.

Inflation was triggered by the increase in foodgrain prices and the government expected that it would moderate in 2011 but this did not happen, he said here.

However, he said the 8.43 per cent year-on-year inflation, as measured by Wholesale Price Index as of December, 2010, was expected to come down to around seven per cent by March 2011.

Delivering the G K Sundaram Endowment Lecture organised by South India Cotton Association, he said managing inflationary risk, particularly foodgrain price inflation, was the biggest challenge in the short run as "we had two years of high inflation."

The food price inflation last year was triggered by rise in prices of vegetables, fruits and eggs, meat and fish, he said, adding the primary answer for food price inflation lay in improved agricultural production and increasing emphasis on the production of vegetables and fruits as well as eggs and milk became necessary.

On the growth of economy, he said it would clock nine per cent in 2011-12. While agricultural growth rate may moderate, the industry and service sectors would grow faster.

India`s savings rate had touched 34 per cent of GDP and the investment rate exceeded 36 per cent of GDP, which should facilitate nine per cent growth in a sustained way, he said.

"However, we also needed to remove the constraints that may come in the way, for this to happen," he said. .