Chambers urge RBI to reverse monetary tightening.
On the back of falling food inflation, overall rate of price rise fell to a one-year low of 9.11 per cent in November — from 9.73 in the previous month. Even so, analysts sense reason to worry: the September inflation has been upwardly revised to 10 per cent from what was earlier estimated provisionally as 9.72 per cent.
As headline inflation fell, chambers on Wednesday demanded the RBI to cut rates so as to arrest a slowing economic growth. In fact, Finance Minister Pranab Mukherjee also said efforts should now be directed towards perking up economic growth as fight against inflation has taken a toll on investments by companies.
“Sustained high inflation that has been a major policy concern for us over the past two years is now beginning to moderate... Growth, however, has slowed in 2011-12... We must turn our attention now to reviving growth as quickly as possible,” he said at a Delhi School of Economics event here.
However, Prime Minister’s Economic Advisory Council chairman C Rangarajan had a different take. “According to latest (inflation) numbers, it is still above nine per cent. Therefore, concerns regarding inflation cannot be taken away from the monetary authorities,” he told reporters on the sidelines of the function.
After all, the rate of price rise has been over nine per cent for a year now. The country’s central bank cannot gloss over this data when it decides to take a call on its monetary moves, according to analysts. As for food inflation, it fell to a four-month low of 8.54 per cent in November. Only that, it did fall to 6.6 per cent for the week ended November 26, after having touched a high of 12.21 per cent.
The government now hopes food inflation may fall below three per cent in a month’s time. “I do expect the food inflation to come down below three per cent within a month,” Chief Economic Advisor Kaushik Basu said on Wednesday at the Conclave. He headed a high-level panel appointed by Prime Minister Manmohan Singh to suggest ways to bring down inflation.
Manufactured inflation is witnessing price pressures, despite industrial growth entering negative territory of 5.1 per cent in October. Manufactured products saw inflation rising marginally to 7.70 per cent in November from 7.66 per cent in the previous month. Among this category, primarily, metal prices went up. While basic metal alloys and metal products rose to 13.07 per cent from 11.37 per cent, iron and semis prices went up to 23.28 per cent from 21.67 per cent.
As inflation has fallen, industry bodies now want RBI to start reversing its tight monetary moves. The Confederation of Indian Industry says it hopes the central bank will now shift its focus to encouraging growth rather than controlling inflation, “given that industrial production has now begun to contract and the investment scenario remains bleak”.
Chandrajit Banerjee, the chamber’s director-general, says RBI should reduce interest rates to gradually reverse the impact of the 13 rate hikes it has undertaken over the last two years.
Ficci has demanded action by the central bank to boost growth. “The significant slowdown in investment as well as consumer demand, as revealed by the latest IIP (index of industrial production) numbers, clearly warrants a pro-active policy stance by the RBI through a rate cut,” says its president Harsh Mariwala.
However, others expect RBI to at most pause its rate-tightening moves.
The gross fix capital formation, a proxy for investment, showed serious downtrend for Q2 at 7.06 per cent (year-on-year), which was 14 per cent in the first quarter.
Indian economy grew by a nine-quarter low of 6.9 per cent in the second quarter of this fiscal. All hopes of the economy recovering in the second half were dashed after industrial production contracted by 5.1 per cent in October — last seen during the time of global financial crisis.
