press trust of india, New Delhi, May 26: Government expects inflation to remain under control as it has adequate stocks to deal with shortage of food grain in the eventuality of poor monsoon, chief economic advisor Arvind Subramanian said Tuesday.
“One factor that is going to affect inflation going forward is the monsoon … Because we do have adequate stocks, we will be able to contain inflation even if monsoon does not turn out to be as good,” he told reporters here.
The Indian Meteorological Department (IMD) has projected a below normal monsoon which might impact food production leading to price rise.
Admitting that the “risk” to inflation is there, Subramanian expressed confidence that the government would be able to contain price rise as it did during the previous financial year.
At present, the price situation is much better with Consumer Price Index (CPI) inflation down to 5 per cent and the Wholesale Price Index (WPI) remaining in the negative territory for past several months, he said.
“CPI inflation is down at about 5 per cent, the latest reading and WPI inflation are in negative territory…the latest reading was of course (-)2.7 per cent,” he said, adding inflation was likely to remain at 5 to 5.5 per cent, as was projected by the Economic Survey.
Subramanian said the oil prices going forward will remain between USD 50-80 and there would not be much “wild swings”.
“Overall inflation is down, inflation prospects are looking good. Substantial quantity and quality of fiscal consolidation and the external situation also are under reasonable control,” he said.
In order to push growth and keep Indian currency competitive, Subramanian pitched for reduction in interest rate by the Reserve Bank in its forthcoming policy review on June 2.
“Looking at the analysis of what is the inflation forecast, what is the fiscal consolidation, what is the international environment… I think there is scope for monetary easing,” he said, adding that RBI is an independent institution.
Observing that China is cutting its interest rates aggressively to make its currency more competitive, Subramanian said, “We need to respond accordingly”.
“Inflation is going to be lower than the RBI’s target. Fiscal policy is supportive and that has implications for interest rates going forward,” he said.
Referring to indirect tax collections, Subramanian said that the receipts have grown by 9.8 per cent in April.
Assuming (indirect tax) buoyancy of between 0.9 and 0.8, nominal GDP growth is between 10.9 per cent and 12.3 per cent, the real GDP growth (for 2015-16) should be between 7.7-9 per cent,” he said.