Montek Singh Ahluwalia, the deputy chairman of the Planning
Commission, said wholesale price inflation would fall to 6 percent by December
compared with 10.55 percent in June. The central bank expects that level only
by end March 2011.
The Reserve Bank of India (RBI) has raised key interest
rates four times by a total of 100 to 125 basis points since March. It has said
that the balance of policy has shifted to contain inflation, in double digits for
five straight months.
“If it turns out that, say, four weeks down the road it
clearly looks like inflation is coming down, then the pressure to tighten
further may be less,” Ahluwalia, an influential aide to Prime Minister Manmohan
Singh, told Reuters late on Tuesday.
Last week, RBI Deputy Gov. Subir Gokarn said the central
bank had done enough to tamp down inflation and now had a “handle on
inflation.”
That statement calmed markets that had feared further steep
rate hikes to rein in inflation which is on target to hit 11 percent in July.
The central bank will next review policy on Sept. 16, but it
is free to take action at any date if it so chooses.
Food inflation, which the government blames for these high
levels of headline inflation, fell in late July on account of good monsoon
rain, a fall in seasonal prices of fruits and vegetables, and the release of
government food grains in the market.
But the central bank has highlighted rising demand-side
pressures which could keep inflation at high levels.
Ahluwalia said in the interview that the central bank’s
actions to tighten policy were to take care of these factors and expected them
to show results in the coming months.
“The RBI is just being cautious, they’re giving themselves
another three months (for 6 percent inflation). I’m sticking my neck out.”
He also noted that normal monsoon rains would boost
agricultural production and that government was on track to meet its target of
bringing down the fiscal deficit.
“All of these things taken together suggest we will get out
of this high inflation phase by the end of the calendar year.”
The Congress party-led government has been attacked by the
opposition parties who say it has not done enough to control prices. The rivals
have criticized a June decision to remove controls on petrol prices and are
resisting a similar move on diesel.
Ahluwalia said there would not be any immediate freeing up
of diesel prices, a step required to narrow the fiscal deficit and to improve
oil retailers’ profitability.
“It’s not something we expect in the next two months or
three months or four months ... The most important thing for now is to have the
petrol price increase understood, absorbed, and for people see it move up and
down.”
But Ahluwalia suggested a decline in crude oil prices could
be used to push through the politically sensitive decision.
“If oil prices go down they should lower petrol prices and
immediately link diesel at the existing prices, so that they can then move in
tandem.”
Ahluwalia said a proposed $11 billion infrastructure debt
fund was unlikely to come up this year, as several regulatory changes were
still required to set it up.
“We should have a decision by the end of the year on
regulatory changes needed to facilitate that actually happen.”
The fund is crucial for upgrading India’s creaky
infrastructure to levels needed for double-digit economic growth and for
developing the country’s fledgling bond market.
Proposals to open up India’s multi-brand retail sector to
foreign investors too would not see progress soon, he said. India currently
does not let firms like Wal-Mart run multi-brand stores in Asia’s third-largest
economy.
“I am glad they (government) have put out a discussion paper
as it clearly gives the signal that this issue remains on the agenda and we are
trying to evoke response.”
