Prime minister advisory panel calls for tight monetary and fiscal policies

India needs tight monetary and fiscal policies to deal with high inflation, the prime minister’s top economic adviser said on Monday even as he appeared confident that headline inflation would ease to 7% by March-end from 8.23% in January.

C Rangarajan, chairman of Prime Minister’s Economic Advisory Council (PMEAC) was speaking after releasing a report titled ‘Review of the Economy 2010-11’.

“Overall inflation should come down to 7% by March-end and further next year because of favourable monsoon… but we need to maintain tight fiscal and monetary policies to protect the economy from inflation,” he said.

Though the government has taken several steps to curb inflation, such as increasing foodgrain availability and introducing favourable changes in trade policy, high inflation has already been felt for two years in a row, said Rangarajan.

But his estimates could bring some cheer —- that the gross domestic product (GDP) was expected to grow 8.6% in 2010-11 and 9% in 2011-12.

The PMEAC’s estimates for this fiscal are identical to the Central Statistical Organisation’s estimate of 8.6% growth this fiscal.
Globally, food prices are already up and international crude prices could also rise if global recovery is strong, said Rangarajan, but indicated that these factors have already been considered while calculating GDP growth.

Pointing out that the agriculture sector was expected to perform “very well,” he said agricultural growth this fiscal would be 5% as against just 0.4% and 1.6% 2009-10 and 2008-09, respectively.

Though concerned over a fall in manufacturing sector growth in November and December last year, Rangarajan said the performance of the mining and services sectors would offset any long-term slackening of manufacturing and industrial growth.