Inflation should start falling now, says top economist Basu

The Indian economy is likely to have grown by 8.6 per cent in the fourth quarter of 2009-10, while the rate of inflation has also peaked and would start falling in the coming months, Kaushik Basu, chief economic advisor to the finance ministry, said in New Delhi on Friday.

Speaking on the sidelines of an event organised by industry chamber Assocham, Basu said the fourth-quarter growth rate is a pointer to India recording over 7.2 per cent GDP growth in 2009-10. It is almost in line with the advance GDP growth estimate of 7.2 per cent put out by the Central Statistical Organisation (CSO) for the year.

Basu, however, said that inflation was still high and the Reserve Bank of India would need to take more measures to bring down inflationary pressures. The inflation rate for March stood at 9.9 per cent and many economists believe it would peak only around June. He hinted that strong monetary tightening may not be the only solution, and intervening on the supply-side would also serve well.

"Since my earlier forecast of inflation in March remaining slightly below 10 per cent has come true, I can now more confidently say that inflation has peaked out and it will be on the downward trend," Basu said.

Official data released on Thursday showed the wholesale price index (WPI) based inflation for March at 9.90 per cent, higher than the RBI projection of 8.5 per cent at end-March 2010.

He, however, declined to comment on the likely rate action of the RBI in its annual monetary policy announcement next Tuesday. "You are probably going to see little bit of different kinds of intervention. I don't know whether it's going to be monetary intervention ... there are things that we are planning in terms of pulses, food release, sugar."

Basu said economic growth was poised to touch the rate of 10 per cent in the next four years. "Let me put down a forecast. I feel that we are going to cross 8.6 per cent in the last quarter of the last fiscal," Basu said. In the first three quarters of 2009-10, the economy grew at 6.1 per cent, 7.9 per cent and 6 per cent respectively.

But Basu warned that things could turn out different from what the general expectations were and it called for caution.