Interest rates have to be increased to control the current demand pressure, C Rangarajan, chairman, Prime Minister's Economic Advisory Council, said at the launch of Indian Bank's 24 hours e-Banking Lounge and inter-bank mobile payment services at Chennai.
Inflation would come close to seven per cent by April-May, he added.
As per the index of industrial production (IIP) data, the industrial production growth has declined to 3.6 per cent in February 2011, compared to 15.1 per cent last year, mainly due to the fall in performance of capital and basic goods.
“IIP is showing some improvement over previous months and we are having some impact of the base effect. For the year IIP should be about eight per cent," he said.
Responding to a question on whether there should be a cap on FII flow to the country, Rangarajan said, “FIIs are coming back with moderate inflows. As the cap is required at larger inflows, at this point of time, there will be no cap on the FII inflows.”
On the de-regulation of diesel prices, he said there would be some policy action and the government may take action by next fiscal. The proposed move would lead to dismantling the administered price mechanism (APM).