Spiralling onion prices may have brought tears to the eyes of a common man, but this will not have a permanent effect on inflation, according to C. Rangarajan, Chairman of the Prime Minister’s Economic Advisory Council (PMEAC).
Much of the price rise in onions and vegetables is due to supply constraints and will have only a temporary impact on inflation, Rangarajan said here on Thursday.
“In case of onion and vegetables, it is the supply factor which has been responsible for the push-up in prices. We need to take action on the supply side, increase availability and see that market mechanisms are improved and availability or existing supply is evenly distributed to consumers,” he said.
Rangarajan was responding to a question on onion prices touching Rs 100 a kg in some cities.
“It may not have a permanent effect. But, it may have a temporary effect on inflation,” he said,
The wholesale price index-based inflation rose to a seven-month high of 6.46 per cent in September. Food inflation was at 18.40 per cent, led by spiralling onion prices. Onion prices surged 323 per cent in September on a year-on-year basis. “There can always be a temporary increase in inflation. But once the availability increases…it is expected that supply will get augmented in coming weeks and then it will come down,” Rangarajan said.
Meanwhile, Agriculture Minister Sharad Pawar said there is a “temporary” shortage of onions and prices are expected to fall in the next two-three weeks.
BULLISH ON GROWTH
Describing IMF and World Bank’s recent downward revision of India GDP growth forecast as “unduly pessimistic”, Rangarajan expressed optimism over economy recording 5-5.5 per cent growth this fiscal.
This is consistent with the PMEAC’s recent move to peg the economic growth forecast for current fiscal at 5.3 per cent.
“I know that several international agencies have forecast numbers that are below this number (5.3 per cent). However, I continue to maintain that it will be 5.3 per cent,” Rangarajan said after inaugurating a two-day international conference on financial inclusion and payment systems here on Thursday.
The International Monetary Fund (IMF) had in its latest world economic outlook (WEO) estimated India’s economic growth for current fiscal at 4.25 per cent (at factor cost) and 3.8 per cent ( according to market prices).
The World Bank had few weeks later revised downward the GDP growth rate to 4.7 per cent from 6.1 per cent projected earlier.