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'Inflation should come to 3-5% for low interest regime'

Last Updated: Sunday, February 17, 2013 - 12:15

New Delhi: Inflation rate needs to be brought down to 3-5 percent for a low interest regime that is essential for promoting industrial production and growth, Indian Overseas Bank chief M Narendra has said.

"Inflation has been at a very high level and unless we bring down inflation to 3-5 percent, we cannot have a low interest regime," Indian Overseas Bank Chairman and Managing Director M Narendra said during an event here.

He further said high interest regime has impacted growth.

"...And if there is no low interest regime, automatically demand is reduced, consumption demand gets reduced. That will lead to manufacturing sector going slower leading to low growth rate," Narendra said.

The Wholesale Price Index (WPI) based inflation eased to 6.62 percent in January versus 7.23 percent in the same month a year earlier. However, retail inflation during the month stood high at 10.79 percent because of high food prices.

The Reserve Bank of India in its third quarter review of monetary policy in late January had cut both the repo rate as well as cash reserve ratio (CRR) by 0.25 percent each to give a thrust to growth.

Narendra said inflation is high mainly because of supply side bottlenecks as agricultural products are not reaching ultimate users and a large amount of it is getting wasted.

"Structurally there are supply bottlenecks, we are not able to get the agricultural produce to the ultimate users and there are large amounts of waste. The food processing industry in India is not properly developed...There is a need to build up large amount of warehousing and the transport system. Without that today we find that the food inflation remains, very obvious, very high," Narendra said.


First Published: Sunday, February 17, 2013 - 12:15
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