India’s headline inflation is likely to cool around the seven percent levels by March 2012, owing to the sharp moderation in food inflation in the recent past, said C Rangarajan, the chairman of the Prime Minister's Economic Advisory Council (PMEAC). On the sidelines of a Bangalore Chamber of Industry and Commerce function, Ranagarajan stated that 'one of the reasons for inflation to settle down at around seven per cent in March 2012 is dwindling food inflation which has come down to 4.3% at the beginning of December this year.'
C Rangarajan, noted that food inflation is exhibiting definitive signs of decline, plunging from 11.81% in October to 4.35% in early December 2011 and added this would lead to a moderation in wholesale price index (WPI) inflation. The PMEAC chairman is also of the belief that the Reserve Bank of India (RBI) may abstain from its hawkish monetary tightening measures as the WPI inflation has primarily been on a declining trend.
Acknowledging that inflation remains at highly uncomfortable levels, Rangarajan also opined that high growth does not warrant a higher level of inflation which calls for policy instruments like interventions in foodgrains market, monetary and fiscal policies, to bring down current inflation and re-anchor inflationary expectations to the five per cent comfort zone.
He also said that the a series of policymaking decisions, including increasing investment limit of Foreign Institutional Investors have been taken to encourage capital inflows in the country in order to curtail rupee’s depreciation.
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