Economic Survey: Easy money policy by rich nations could fuel inflation
   
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Economic Survey: Easy money policy by rich nations could fuel inflation

Last Updated: Wednesday, February 27, 2013, 15:43
 
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Economic Survey: Easy money policy by rich nations could fuel inflation
New Delhi: Easy money policy of major developed and developing nations could aggravate inflationary expectations in India, cautioned Economic Survey for 2012-13.

"The positive effect of continuous policy easing by the major advanced and developing countries could pose a higher risk to inflation expectations and may be considered as an upside risk to inflation forecast," said the Survey tabled in Parliament today by Finance Minister P Chidambaram.

"Inflation has eased in almost all major advanced and emerging market economies in the current year," it said.

As far as India is concerned, it said, the average wholesale prices-based inflation in 2012 (April-December) moderated to 7.55 percent from 9.35 percent in the corresponding period of the previous year.

Inflation further eased to three-year low of 6.62 percent in January as compared to 7.23 percent in the same month last year.

With moderation in non-food manufacturing sector and global commodity prices, the headline inflation may decline to 6.2-6.6 percent in March 2013.

Prescribing ways to control the price rise, the Survey said: "Apart from monetary policy attempting to control demand, supply side responses will be necessary to bring down inflation in a sustained way, and ongoing policy initiatives need to be pursued."

Given that India faces a number of constraints on the supply side, in the short run, curbing demand for commodities moderately to catch up with supply may be an effective tool, the Survey said.


"Benign inflation in global commodity prices, with inflation for energy and non-energy commodities in base line scenario expected to be around (-) 2.6 percent and (-) 2.0 percent respectively in 2013, will check the inflation of trade-able commodities even in India," the Survey said.

Noting that tight monetary policy by Reserve Bank in the face of persistent inflationary pressures has contributed to a sharper slowdown of the economy than anticipated, it said, there is some room for further easing of the policy to perk up economic activity.

"There has been some moderation in inflation in third quarter of 2012-13 and with the expected fiscal consolidation the current macroeconomic situation creates room for a more accommodative monetary policy," it said.

Further, with a significant part of inflation getting generated because of poor supply responses, a further shift in the policy stance of RBI, coupled with improving access to credit with moderation in its cost, would be desirable, it said.

PTI




First Published: Wednesday, February 27, 2013, 14:10


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