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RBI should check if inflation up on excess liquidity

business Updated: Jul 20, 2010 19:26 IST

IANS
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The central bank will have to take a call if high inflation is on account of excess money supply in the system, Cabinet Secretary K.M. Chandrasekhar said on Tuesday.

The remarks assumes significance as they come barely a week ahead of the first quarterly review of the monetary policy for this fiscal to be conducted by the Reserve Bank of India (RBI) Governor D. Subbarao.

"Today as I see it (inflation) is not a major threat. But a call will have to be taken by the Reserve Bank of India on whether the inflation is due to high money supply,” said Chandrsekhar, a former secretary in the finance ministry.

"If it is because of greater liquidity, it will call for measures from the RBI. How the RBI will react, I don't know but they will be studying it and taking measure as required,” said Chandrasekahr, responding to a query on the impact of India's high inflation rate and if it will become a threat.

The cabinet secretary also warned that the prices of pulses will continue to remain high in the country due to the “high mismatch between demand and supply.”

He, however, added that headline inflation would ease to 5-6 percent by December, the government said on Tuesday.

"As far pulses are concerned, their prices are going to be problematic," Chandrasekhar told reporters at a media briefing organised by the Confederation of Indian Industry.

Chandrashekhar was speaking after a closed-door deliberation with secretaries of various ministries and industry captains on whether India can achieve a sustainable growth rate of 10 percent by 2014.

"The problem with the pulses is owing to a high mismatch with their demand and supply," said Chandrasekhar.

India is one of the world’s largest consumer and importer of pulses. The domestic demand of around 15 million tonnes yearly outstrips production of around three million tonnes.

"We have consumed almost all the pulses, available even abroad. We cannot buy it from even abroad," said Chandrasekhar.

Asked to give a time frame by which retail prices of foodgrains would soften, Chandrasekhar said "the government has already increased its minimum support price for rice and wheat for its increased procurement and ensuring stable supply."

"Accordingly, its prices should not fluctuate and be stable," he said, adding sugar prices have come down and that of edible oil has become "steady".

India's annual food inflation rose to 12.81 percent for the week ended July 3.

"Overall, their had been no great change in the consumer price index of food articles for the last three to four months," he said.

Asked about the high inflation rate, Chandrasekhar said: "With food prices stabilizing, the inflation rate should be under control at 5 to 6 percent by end of this year."

A recent fuel price hike drove India's annual inflation up to 10.55 percent in June, from the previous month's 10.16 percent.