Inflation is expected to come down to 5.5 per cent by March 2011, Prime Minister's Economic Advisory Council Chairman C Rangarajan said today.
Besides, the PM panel also sees the country to achieve a GDP growth rate between 8.5- 9 per cent in the current fiscal.
"I think by March (2011), we can expect (WPI) inflation to come down to 5.5 per cent," Rangarajan said on the sidelines of the 93rd annual conference of Indian Economic Association here.
"I think any level of inflation beyond 5 per cent (threshold level of inflation) is uncomfortable," he asserted.
The wholesale price index-based inflation stood at 7.48 per cent in November against 8.58 per cent in October while food inflation shot up
To 12.13 per cent for the week ended December 11.
Asked about the possibility of hardening of interest rate in January in the wake of double digit food inflation, Rangarajan said it would depend upon how inflation behave in coming weeks.
"It (rate hike) all depends upon how overall inflation behave in coming weeks ... I think if there is further fall in WPI inflation then Monetary Policy would remain as it is now ... They (RBI) have not made any change in policy rate ... We need to watch the behaviour of overall inflation before monetary authorities can take any decision," he said while asserting that there was a possibility of moderation in inflation even though food inflation have shown rise.
Asked about the GDP growth, Rangarajan said against the forecast of 8.5 per cent, the country could achieve higher growth. "We had forecast the GDP of 8.5 per cent we will achieve 8.5 per cent ... Perhaps we will do better than that ... I expect growth rate between 8.5 and 9 per cent," he said.
On being asked about when liquidity situation would ease, he said that liquidity situation would improve in the last quarter of the current fiscal on the back of increase in public expenditure and RBI�s recent measures.
"RBI has already taken some measures to ease liquidity ... To some extent liquidity was strained because of payment of taxes ... I think liquidity situation will considerably improve in last quarter of this fiscal when public expenditure rises with measures taken by RBI," he said.
RBI had kept repo and reverse repo rate unchanged and reduced statutory liquidity ratio from 25 per cent to 24 per cent in last mid quarter review of policy.
Rangarajan said though the economy has the potential to grow at 9 per cent, but there were two areas of concerns which needed to be looked at.
"Looking at constraints on growth, there are two sectors which must be focused on first is agriculture and second is infrastructure particularly power," he said.
"Agriculture growth is necessary important from the point of view of reducing poverty in the country and for a more balanced regional development and for food security. In the field of infrastructure, power generation is important and we need to add capacities of sufficient order to enable economy to grow at 9 per cent," he said.
He further said that the Indian economy would become middle income country by 2020.