India’s weekly food inflation data, to be released on Thursday, would likely report a decrease of one percentage point, the government’s chief economic advisor Kaushik Basu said today.
Wholesale food inflation surged to 11.47 per cent for the week ended August 28 from 10.86 per cent in the previous week.
The rise was on account of volatility in international wheat prices due to crop failure in Russia, Ukraine and Kazakhstan, and resultant speculative trade in the international market, Basu said on the sidelines of an interactive session at the Bharat Chamber of Commerce and Industry.
Any sharp steps to control inflation might result in a rise in unemployment, he further said.
Russia has imposed a ban on its wheat exports, following massive crop failure due to drought and fires.
However, on a long term, inflation in India is likely to ease due to last year’s base effect, said Basu. Also, in spite in fall in wheat production, the global stock position better than that two years ago, he added.
“Inflation is a cause for concern, but the weekly food inflation is likely to be lower this week. International wheat situation is extremely worrisome, and speculation is affecting prices in India,” Basu said.
The Reserve Bank of India will present its monetary policy on September 16. It has already raised the repo rate by 100 basis points and the reverse repo by 125 basis points since March to tame inflation.
Q2 growth to be lower
Economic growth in the second quarter would be lower than the 8.8 per cent expansion witnessed in the first quarter of the current financial year, Basu said.
He also said the growth in the first quarter was on account of a lower base in the corresponding period of the previous financial year.
Also, the rebound in agricultural production would be witnessed in the third and fourth quarters of this financial year, he said. For the full year, Basu said the GDP growth rate could be about 8.5 per cent.
Finance Minister Pranab Mukherjee had recently pegged the GDP growth rate for 2010-11 at 8.5-8.75 per cent.
The pickup in the services sector growth was low at 8 per cent, compared to an average of 13 per cent earlier, added Basu.
Food grain management
Basu also suggested that the government could enter into a swap deal with other countries to tackle the large food grain stocks piled up in FCI godowns.
“The foodgrain cannot be released at a zero price, as it might lead to round-tripping, whereby the government might end-up paying subsidy for the same stock. At prices higher than market price, there would be no takers outside. It needs careful pricing,” said Basu.
The Supreme Court had recently ordered the government to distribute grain free instead of letting it rot in godowns.
Subsequently, the government decided to release an additional 2.5 million tonnes of wheat and rice to states at highly subsided prices for the next six months from its stock.
