Driven by softening vegetable prices, India’s wholesale price inflation decelerated to 2.38 per cent in September from 3.74 per cent a month ago, data released on Tuesday showed. The news comes a day after retail price inflation was shown as decelerating to its lowest level since the series was launched in January 2012, at 6.46 per cent in September, compared with a downward revised 7.73 per cent a month ago. The continuing decline in crude oil prices may cause a further fall in wholesale as well as retail inflation.
This has led to increased clamour from industry that the time for the Reserve Bank of India (RBI) to cut interest rates to revive sagging growth has come. According to Confederation of Indian Industries director-general Chandrajit Banerjee, “The drop in the inflation would also help dampen inflationary expectations in the future and signal the onset of a low inflation cycle. This would provide space to the RBI to review its cautious stance on interest rates.” But, RBI governor Raghuram Rajan has been rightly pursuing a hawkish monetary policy stance to keep inflation under check. The central bank has not reduced rates in four consecutive policies despite pressure from industry and the finance ministry to cut rates to boost growth.
The government must not pressurise the RBI into any hasty decision to reverse the gear. As Rajan himself pointed out in his address to the Institute of International Finance in Washington on Saturday, India’s economic recovery is still uneven. The International Monetary Fund last week said that with recent monetary tightening, disinflation may continue in India, but inflation overall will remain high at 7.8 per cent in 2014, declining slightly to 7.5 per cent in 2015. The monetary normalisation in India should, therefore, proceed gradually, given the high level of inflation in the country. India first needs to “fix the plumbing” to kick-start stalled projects and correct problems in coal and gas sectors to accelerate recovery and get the economy back on track.