Mumbai: Ahead of the January inflation readings later this week, Reserve Bank Governor D Subbarao on Monday said the price rise index which slowed to a three-year low of 7.18 percent in December, is "still high."
"If you take the macroeconomic context today, you find that growth has moderated, inflation has come off the peak, but even at 7 plus percent, it is still high," he said while addressing the convocation of the RBI-promoted Indira Gandhi Institute of Development Research here.
The forthcoming inflation numbers are important as they come after the January 29 policy easing, when the RBI cut both the interest rates as well as the cash reserve requirements of banks by 25 bps.
The also come after the government partially freed diesel prices in the middle of January by allowing oil companies to raise retail diesel by 40-50 paise every month apart from taking away the subsidy on bulk diesel customers.
While retail or consumer-price based inflation readings jumped to over 10 percent in December, headline inflation declined to a three-year low to 7.18 percent during the month.
The January inflation numbers are also crucial because they will be considered before the mid-quarter review by RBI on March 19.
Taking a dig at those who blame his tight monetary stance as a major reason for the steep decline in growth, the Governor said: "The RBI has been criticised for hurting growth and we are sensitive to that. But one should understand that the person blaming for growth is very articulate and has got proper platforms for speaking up."
"However, the person pinched by inflation does not have a platform and I think both the RBI and the government should take care of that part of the population," said Subbarao, who fought a solitary battle of nearly 40 months to fight inflation even as his counterparts across the globe have re-embraced an easy monetary policy regime as growth in their home countries faltered again.
On the still sticky inflation, Subbarao said: "Though it has declined from peak, it still is above our comfort level" and pointed out that "structural and cyclical factors are driving the inflation".
"Crude oil and food inflation are driving inflation up. There is inflation from the high fiscal deficit as well apart from those coming in from demand pressures. How do we balance between declining growth and stubborn inflation? How do we calibrate the balance? That's a constant struggle in the Reserve Bank," the Governor said.
He said along with a deceleration in economic growth, investment has not only decelerated but also declined.
"Also, the external sector is very vulnerable and that is the macroeconomic context in which we formulate our monetary policy," he said.
Admitting that the RBI is faced with dilemma in the inflation-growth paradox trade-off, the Governor said there are "two dilemmas for us-- balancing between growth and inflation."
He said RBI is also concerned over the advance GDP numbers put out by the Central Statistical Organisation last week which pegged GDP growth at 5 percent for this fiscal that would be a decadal low.
Subbarao said: "Growth is lower because consumption has fallen, net exports have fallen and most importantly, investment has declined, which is a matter of great concern because today's investment is tomorrow's production capacity."
Noting that the low-growth-high-inflation scenario may be unique to the Indian economy, Subbarao said this was a contrarian case of sorts in the growth-inflation balance.