04/27/2010, 00.00
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India’s inflation hits 9.9 per cent, faster than economic growth

India’s economy is growing fast, but inflation is growing even faster. For the governor of the Reserve Bank of India, India is avoiding the path adopted by China and other Asian nations, following instead its own monetary and financial policy.
New Delhi (AsiaNews/Agencies) – Reserve Bank of India Governor Duvvuri Subbarao said faster inflation is a “big worry” for the economy. For this reason, the central bank plans to remove monetary stimulus in a gradual manner to ensure sustained growth. He made the point during a speech he delivered yesterday at the Peterson Institute for International Economics in Washington.

In March, India’s benchmark wholesale-price inflation shot up to a 17-month high of 9.9 per cent. Consumer prices paid by industrial workers surged 14.9 per cent in February from a year earlier.

Food-price inflation has hovered above 15 per cent since November, ostensibly because of bad monsoon rains last year and lower agricultural output. Some observers have suggested however that the high rate is due to speculation and poor infrastructure (roads and ports), which makes it harder to deliver products, especially perishable food.

Government fiscal and monetary measures have helped the economy, but private consumption and investment have not fully recovered to pre-crisis levels, Subbarao said.

The governor defended the Reserve Bank’s monetary policy. Unlike central banks from Malaysia to China, which have raised interest rates or taken steps to remove excess cash from their banking systems to fend off inflation and asset-bubble risks, India has kept interest rates low enough not to dampen economic recovery.

The Indian economy probably expanded by as much as 7.5 per cent in the fiscal year that ended on 31 March, and may grow 8 per cent in the current year, Subbarao said.

Still since prices have grown faster in recent months, inflation remains a big worry.

“Supply- side inflation pressures are abating only gradually; meanwhile, demand-side pressures are building up,” Subbarao noted.

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