Montek seeks to puncture deflation fears

Even as inflation fell to 0.27 per cent for the second week of March from 0.44% for the previous week, Montek Singh Ahluwalia, deputy chairman of the Planning Commission, maintained that the Indian economy is not heading towards deflation, even though inflation, based on the wholesale price index, could fall further.

"I don't think we are heading towards deflation. It is true that inflation rate has come down...this is because at this time last year, there was a sharp increase in prices," Ahluwalia told reporters on the sidelines of the annual convocation of Acharya N G Ranga Agricultural University in Hyderabad.

He further said that the inflation rate could ''go to zero or may even be negative for a week or two. It has happened in the past...during 1970s the inflation rate became negative for a brief period. But I don't expect that there would be deflation at all now".

Ahluwalia warned that India's economy would be "significantly worse" in 2009 than in the previous year. "Is the problem going to end in 2009/10? I don't think so," he said. "Our latest assessment, on calendar year basis, is that 2009 is clearly going to be significantly worse than 2008."

Speaking in New Delhi on Wednesday, Ahluwalia had said that the pace of economic growth may be slower in the year beginning 1 April. He called for more fiscal and monetary stimulus to help maintain the current year's rate of expansion.

He also claimed that India's rural economy has been insulated from the global slump, he said.