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India should focus on reining-in inflation, says economist

business Updated: Oct 24, 2010 13:32 IST

Even as Prime Minister Manmohan Singh is confident about a double-digit GDP growth in the coming years, a leading economist said that India should focus on reducing its inflation by rolling back its monetary policy.

"The Government should not be obsessed by the 10 per cent or double-digit growth. An eight per cent growth is fine, its fast enough for a growing economy like India. But what is necessary is to bring down inflation to four per cent," USA's Research Fellow of the Heritage Foundation, Derek Scissors, told on the sidelines of an event in Mumbai.

A double-digit growth would only result in increasing inflation, he said.

"It (10 per cent growth) is just going to push you to a place where inflation is much worse. An eight per cent growth and four per cent inflation is better for everyone in the country than a 10 per cent GDP growth and 12 per cent inflation. This is not the way the Government should be working," Scissors said.

The Government should be thinking how it could deliver real wealth gains to its people rather than increasing its GDP to 10 per cent, he said.

"To achieve lower inflation rates, the Government should not be borrowing much money. There was a one-time drop in the fiscal deficit because of the telecom auction. But in the long-term, India does not need a deficit. It is growing quite well," Scissors said.

Unless the borrowings are reduced, interests rates would increase and so would inflation, he said. "To reduce inflation, the Government needs to stop over-borrowings. Borrowings will only result in an increase in the rates of interest and also the rate of inflation," Scissors said.

Currently, the inflation is not only supply-factor driven but also monetary-factor driven.

"The Government needs to roll back its monetary policy to keep its inflation low," he said.