Chairman of the Prime Minister's economic advisory council C Rangarajan today said inflation could decline to 7% by the end of the current fiscal on account of good monsoon this year.
"There could be an improved situation with respect to food items and articles, because there was good monsoon.
Therefore, with the moderation in the vegetable prices in the first three months of the next year, the inflation may come down to 7%," he told reporters in Hyderabad.
Rangarajan, who was here at the Institute of Development and Research in Banking Technology, was of the view that with another good monsoon, inflation may come down further to 6% in the next fiscal. He said the movement in global commodity prices, and not the declining value of rupee against dollar, will have bigger implications for inflation which is hovering near the double-digit mark since December.
On fiscal deficit, he said dollar appreciation against rupee could force the fiscal deficit upwards of the projected 4.6% of GDP for the current financial year. He said with the weakness of the rupee persisting, subsidies from the Government to oil companies may remain high. "I had mentioned some months ago that it is going to be very difficult to achieve the fiscal deficit of 4.6%.
I believe that it is tough as the international commodity prices, which were expected to come down, have not come down. "And therefore the under-recoveries of the oil companies are high. Therefore it may be necessary to provide additional subsidies to them," he said.