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Friday, March 12, 2010

Food inflation to ease, WPI unlikely to touch double-digits

The Planning Commission today said that high inflation, primarily driven by rising food prices, is likely to ease in the next few months on the back of an expected good rabi crop.

"I expect food price inflation to come down in the next couple of months on the back of an (expected) good rabi crop," Planning Commission Deputy Chairman, Montek Singh Ahluwalia, said at a conference here today.

Downplaying fears of WPI inflation touching double-digits, the Planning Commission official said, "I don't think this will happen. I expect WPI inflation to gradually come down...You will see that."

With the economic growth momentum returning, the Planning Commission expects a GDP growth of 8.5 per cent for FY 11 and a nine per cent growth in the subsequent fiscal, he said.

"I think the economy is doing very well...We have weathered an extra-ordinary crisis... Now we are well set to get back to 8.5 per cent (GDP growth) in 2010-11 and hope to see a nine per cent growth after that," Ahluwalia said.

"We are going to get back to the path of fiscal prudence," he said, adding that with the economy improving, he expected insitutional investments to continue. I think the fiscal deficit has been brought down -- economic growth momentum has returned," Ahluwalia said, adding "we are counting on this momentum continuing in the next two-years...That is what we predicted and that is what we were expecting."

According to him, the (Indian) economy has shown a very good resilience. The government was concerned about the high food prices which he attributed mainly to the drought conditions of last year.

"I think it (high food prices) is mainly because of the drought conditions last year. Excessive speculation and exaggerated reports have also contributed (to the price rise)," Ahluwalia said. Now, however, with rabi crops coming in, he expected food price inflation to decline in the next couple of months. On government borrowings and whether it would impact private demand, Ahluwalia said that there was no need to worry overmuch about it. "There is no need for too much worry about Government borrowings next fiscal," he said.

Government borrowing is pegged at Rs 4,57,000 crore in the next fiscal.

Asked about the poor response which state-run PSU issues have received recently, Ahluwalia said that the relatively poor response did not indicate that the government should slow-down its disinvestment plan.

State governments should proactively take steps to improve basic infrastructure like health and education, Ahluwalia said.

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