Kochi, Nov 9: Prime Minister's Economic Advisory Council Chairman C Rangarajan on Tuesday said inflation, a matter of concern, may come down to 7 per cent by March 2012.
There could be a significant easing of inflation in the last quarter of the fiscal and inflation may come down to 7 per cent in March 2012, he said speaking at a function here.
The rationalisation process in the pricing of petroleum products was still to be completed and this may have an impact on price levels in the coming months, the former RBI Governor said.
Factoring all these, the headline WPI inflation would remain high till December this year, he added.
The headline inflation was 9.7 per cent in September. Food inflation rose to 12.21 per cent for the week ended October 22.
The high inflation seen in the last two years is due to certain severe supply constraints, particularly of farm products, Rangarajan said.
Noting that the industrial production has remained ‘subdued' in the last few months, he said it was important for the monetary authorities to focus primarily on ‘taming' inflation which has remained above 9 per cent continuously for more than 10 months.
The regime of tightening can come to an end as inflation shows definite signs of decline, he said.
Pointing that there was need to remain committed to maintain inflation at low levels, he said high growth does not warrant a higher level of inflation.
“We must use all our policy instruments interventions in the foodgrains market, monetary policy and fiscal policy to bring down the current inflation and re-anchor inflationary expectations to the 5 per cent comfort zone', he said.
Rangarajan said fiscal deficit is projected to fall to 4.6 per cent in the current year. In 2010-11, the fiscal deficit came down to 4.7 per cent of GDP.
“There are concerns whether we will achieve this. To gain credibility, it is important that fiscal deficit remains close to this level. Over the medium, we should aim to reach the target of three per cent of GDP,” he said. Some policy decisions will have to be made. Some of them may be controversial like the petrol price hike, he said. Stressing the need to focus on agriculture, he said this was necessary not only for ensuring food security, but also in making a dent on poverty.
“Without a strong growth, we will not be able to provide employment to the growing number of young people who will join the labour force”, he said.
