Headline inflation is expected to drop to 6.5-7% by March, thanks to the high food production and lower global commodity prices, the Survey has said.
The report said that prices could drop further in the coming months on account of tightening of the monetary policy by the Reserve Bank of India.
However, the Survey underlined the need to keep a close watch on the situation as the recent global uncertainties could put pressure on the crude oil prices. "This represents a major risk and challenge ahead and the best course of action would be to persist with regular step-adjustment of domestic energy prices which will help reduce inflationary pressure and fiscal consolidation efforts."While the monetary policy has slowed the output growth, it has eased demand side inflationary expectations as well.
Though the RBI raised policy rates to rein in prices, there is a need to examine the linkages and trade-offs between policy rate changes and inflation in the Indian context for better calibration of monetary policy, it said.
The headline inflation touched double digits at 10.1% in September 2011. However it fell to 6.5% in December 2011.
The Survey said greater attention needs to be given to asset price bubbles in the real estate and stock markets.