Inflation, which rose to 7.55 per cent in August, is a consequence of macro-economic imbalance, said Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission. "If you are pushing for too much investment and you not have the savings needed to support it, you are going to generate sectoral imbalances that will lead to inflation," he said.
The inflation rate, measured by the Wholesale Price Index, was expected at 7 per cent, according to an NDTV poll of 15 economists. It stood at 6.87 per cent in July. Inflation has averaged a little over 7 per cent this year and although it remains above the RBI's perceived comfort level of 5 per cent, it is lower than the 9.52 per cent average through 2010 and 2011.
This has dimmed expectations of a rate cut by the Reserve Bank of India in its monetary policy review on Monday, September 17.
GDP growth and industrial production have also slowed down, sparking fears about a slowdown in the economy. However, according to Ahluwalia, the slowdown in growth is more because of global problems.
Signaling a revival of its reform agenda, the government on Thursday raised diesel prices across the country by Rs 5, the first such move in 15 months in a bid to control the its burgeoning subsidy bill and control its fiscal deficit. Markets and industry cheered alike with Nifty breaking the 5550 levels for the first time in 13 months, while the Sensex jumped 400 points. Rupee too rose over a per cent against the dollar to a two-month high.
Moreover, Cabinet is also likely to meet on Friday to discuss FDI in aviation sector and divestment of 5 PSU-firms.
Ahluwalia reiterated the need to take tough decisions on the economic front to accelerate growth. “The move to hike diesel prices is one such touch decision that was needed,” he said, adding that the FY13 GDP growth would be above 5 per cent, unlike analyst expectations.
The move to hike fuel prices comes after the government has been criticized for policy paralysis. Credit rating agencies too had warned of a possible downgrade on lack of policy reform.
HSBC recently cut its economic growth forecasts for fiscal 2013 and 2014 for India citing lack of reforms, a difficult global economic backdrop. It also stated RBI's stance to not cut interest rates as one of the reasons. HSBC now expects India to grow 5.7 per cent in FY13, which is down from its previous forecast of 6.2 per cent.
With inputs from Thomson Reuters
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