Government bungled on inflation forecast, admits Ahluwalia

Planning Commission deputy chairman Montek Singh Ahluwalia admitted on Sunday that he and the government were wrong in projecting that inflation would moderate soon, adding that the mis-projection was hurting the government's credibility.

Both Ahluwalia and finance minister Pranab Mukherjee had predicted earlier that inflation would come down by December; but it remains stubbornly above the double-digit mark. Latest data shows headline inflation based on the wholesale price index at 9.73 per cent in October, while food inflation was recorded at 10.63 per cent for the week ended 5 November.

"It's absolutely true that we have been hoping that the moderation in inflation would happen earlier and to that extent our credibility becomes a question. We should recognise that short-term forecasting is subject to error. By February, you will have the January data and if it turns out that inflation is not coming down by then, then we really don't know what we were doing,'' Ahluwalia said in an interview to a news channel.

He said that the government was still hoping that inflationary pressure would ease from the beginning of next year, and that inflation would come down to 7-7.5 per cent by March next year. Inflation has remained near double digits since January 2010.

"The government is certainly worried about inflation. It's true that inflationary pressure is higher than what we had thought it would be. The RBI (Reserve Bank of India) has taken a number of steps. It's too early to say it's not having an impact. All the research shows that monetary tightening takes at least three to six months. Maybe by the end of the fiscal year, which is really March 2012, you will see inflation coming down,'' he said.

Reacting to corporate India's criticism that there is a paralysis in government decision-making, Ahluwalia said, "Industry has been a lot more focused on decisions that are holding up infrastructure projects, and not the (financial) reforms. The government is keen to push (reforms) ahead but needs to develop political consensus and if measures like GST, DTC and other reforms are delayed, that does not mean that they would not happen."

With assembly elections in five states, including the politically crucial Uttar Pradesh, round the corner, Congress managers are hoping that the government's efforts on the price front will start showing results soon.