Millennium Post

Rajan’s gamble paying off, inflation dips to 4.38%

Cheaper food items helped retail inflation drop to a fresh low of 4.38 per cent in November — the fifth consecutive month of decline — a development that can strengthen the case for interest rate cut by the RBI. This is the lowest level of Consumer Price Index (CPI) based inflation since the government started computing the new series of data in January 2012. It stood at 5.52 per cent in October 2014, while same was over double the current level at 11.16 per cent in November 2013.

The food inflation also came down to 3.14 per cent in November as against 5.59 per cent in the previous month. Retail prices of vegetables declined by 10.9 per cent as against a decline of 1.45 per cent in October, according to the data released by the Ministry of Statistics and Programme Implementation on Friday.

Price rise in fruits slowed to 13.74 per cent from 17.49 per cent in October.

However, the rate of inflation in protein-rich items like eggs, fish and meat was at 6.48 per cent in November, slightly higher from 6.34 per cent in the previous month. The Reserve Bank in the recent past has focussed on retail inflation while deciding its monetary policy, but there have been no rate cut for many months. RBI has been targeting a retail inflation of 8 per cent by March 2015 and 6 per cent by January 2016.

In its monetary policy review earlier this month, the Reserve Bank kept its key repo rate unchanged at 8 per cent and cash reserve ratio (CRR) at 4 per cent.

"...if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle," RBI Governor Raghuram Rajan had said."Inflation has come down because of the seasonal fall in vegetable and fruit prices. And it has also been helped by fall in global commodity prices... However, RBI will not cut the policy rates before the Union Budget (2015-16)," said Rupa Rege- Nitsure, Chief Economist, Bank of Baroda.

Rajan mantra for Govt: ‘Make in India’ for India

RBI Governor Raghuram Rajan on Friday sounded a word of caution about the new government’s ‘Make in India’ campaign that assumes an export-led growth path of China and said instead it should be ‘Make for India’ that will produce for the internal market. He also pitched strongly for some budgetary incentives for household savings that could help ensure that country’s investment is largely financed from domestic savings.

Domestic demand has to be financed responsibly as far as possible through domestic savings, he added. “I am cautioning against picking a particular sector such as manufacturing for encouragement, simply because it has worked well for China. India is different and developing at a different time, and we should be agnostic about what will work,” Rajan said while speaking at the Bharat Ram Memorial Lecture at FICCI in New Delhi. “There is a danger when we discuss ‘Make in India’ of assuming it means a focus on manufacturing, an attempt to follow the export-led growth path that China followed. I don’t think such a specific focus is intended,” he said. Modi had announced an ambitious ‘Make in India’ programme in his Independence Day speech.

“Instead, I am counselling against an export-led strategy that involves subsidizing exporters with cheap inputs as well as an undervalued exchange rate simply because it is unlikely to be as effective at this juncture. I am also cautioning against picking a particular sector such as manufacturing for encouragement simply because it has worked well for China,” he said. “India is different, and developing at a different time, and we should be agnostic about what will work.”
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