Curb inflation to sustain high growth rate: RBI governor

Containing inflation is imperative to sustaining a high growth rate of the Indian economy in the medium-term as also over the longer term, according to the Reserve Bank of India (RBI).

"A low-inflation regime is a critical attribute of a favourable investment climate, on which growth sustainability depends," RBI governor D Subbarao said, adding that fiscal consolidation will also contribute to improving the investment climate.

In order to ensure that the inflation rate remains low, the RBI governor said, both demand management and supply response policies should be coordinated in ways that work to bring inflation under control.

He attributed the rising inflation levels to the structural changes in consumption patterns like high demand for proteins, fruits and vegetables and the consequent rise in their prices.

Combined with this, the weak supply response in agriculture and the imperative to translate the 2011-12 budget's growth initiatives into concrete actions, infrastructure bottlenecks and human capital imbalances have added to structural inflation, he said.

The governor said the high inflation-high growth mismatch has been evidenced by cross-country as well as domestic experience.