Inflation to soften by mid-October: Kaushik Basu

Inflation would continue at the 7.5% level till September this year, after which it is likely to go below 7%, Kaushik Basu, chief economic advisor to the union finance ministry, said today.

Inflation would continue at the 7.5% level till September this year, after which it is likely to go below 7%, Kaushik Basu, chief economic advisor to the union finance ministry, said on Tuesday.

"My expectation on inflation based on wholesale price index (WPI) is that it would continue to remain at 7.5% and should go down by September," Basu said while taking part at a workshop on The Indian Economy and the Economy Survey organised by Southern India Chamber of Commerce and Industry (SICCI) in Chennai.

The inflation is expected to soften by mid-October, he said.

Citing the food inflation that went up to 20% in February 2010, Basu said it is currently at around 10% but still high.

Pointing out that there is no magic solution for the problem as the prices are determined by millions of people across the country, he said the government would address the issue with its fiscal policies.

On the issue of fiscal deficit, Basu said the nation missed its target owing to increase in oil prices and decline in corporate tax income.

He said the government expects the fiscal deficit to be around 5.1% for the current year.

On improving exports, Basu said creating a credit line based on the Indian rupee could create demand for Indian currency.

Basu asked the industry to take advantage of the rupee depreciation for exporting more rather than curbing the imports.

On the rating revisions by credit rating agencies like Standard and Poor's (S&P) and Fitch Ratings, he said they do make occasional mistakes like the downgrades for India but what they say affects investor sentiments.

About foreign direct investment (FDI) in retail, he said the biggest beneficiaries would be the farmers as multinational companies with global supply chains would source from here which would help the domestic small scale units.