Survey Says Inflation Moderate In Coming Months

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Projecting a moderation in inflation despite the hike in petrol and diesel prices, the Economic Survey today cautioned against the pressures from rising foreign funds and global commodity price movement. Even though the fuel price hike this month would add 19 basis points, inflation rate would remain lower at 4.4 per cent during the current fiscal, compared to 5.4 per cent in the previous year, mainly due to policy measures taken in the last 18 months, according to the pre-Budget Economic Survey which was tabled in Parliament today. The Survey, however, warned the government would have to maintain vigil on this front as price management is a complex task, more so because of the pressures from rising capital inflows and global commodity price movement, particularly oil that breached the 100 dollar a barrel mark. Supply management is also critical to stabilising inflation expectations, the economic report card said. In this regard, the reduction in tariffs on non-agricultural products has played an important role in bringing Indian inflation rate in line with the global rate and asked for the trend to continue. So far as agriculture items are concerned, prices of essential and other items will play a critical role as poverty has come down and per capita income has risen, the Survey said. But tariffs on farm products are high and modernisation of Indian agriculture and agro-processing is going at a slow pace, which could also affect inflation. It is particularly so because food still occupies a large portion of our consumption basket. While removing constraints on farm modernisation and urban land supply will lower inflation, further development of India's debt and currency markets will enhance India's investment climate. These steps will bridge the gap between inflation and real interest rates, the survey said. While the macro economic fundamentals continue to boost confidence, the decisive change in growth trend also shows that the economy was &quot;perhaps not fully prepared for the different set of challenges that accompany fast growth&quot;. The rupee appreciation of 8.9 per cent between April 3, 2007 and February 6, 2008 affected exports in some sectors with low import intensity. Besides the rupee impact, the US slowdown is also expected to hit the exports. &quot;The US economy is expected to slow down in 2008, consequent to the sub-prime crises. Most projections of the world economy suggest a moderate but not severe slowdown in world growth. This will impact both the demand for India's exports and the value of imports,&quot; the Survey stated. It said the sub-prime crisis in the US may lead to additional capital flows into India and other emerging markets. &quot;The situation of excess inflows is likely to remain, though the pressure on reserve accumulation and exchange rate appreciation is likely to ease,&quot; the Survey said. In the longer term, the solution to excess capital inflows lies in deepening productivity gains and addressing the root causes like interest differential and build-up of expectations on the rupee. The policy reforms options listed in the Survey also included allowing regulated private entry into coal mining, phasing out control on sugar, fertiliser and drugs and selling old oil fields to private sector. It suggested private corporate investment in nuclear power, subject to regulation, and added that the state electricity regulatory commissions should notify rational and credible cross-subsidy for open access. (PTI)