Small sacrifices in growth inevitable to rein in inflation: Subbarao

RBI governor D Subbarao has defended his hawkish stance against inflation and rate cut saying the economy may have to sacrifice a bit of growth over the short term, but curbing inflation is necessary for the long-term prospects of the economy.

Some sacrifice of growth may be inevitable as India seeks to control high inflation, Subbarao said while addressing the Asia Society in New York last night.

Subbarao's defence of the tight-money policy comes at a time when the central bank is facing flak over its high-interest rate policy, which is seen by might as the villain that is retarding economic growth.

"The RBI's response to the criticism is that some sacrifice of growth in inevitable, a necessary price we have to pay to bring down inflation. But that sacrifice of growth is only in the short term," he said during a lecture on 'India in a Globalizing World - Some Policy Dilemmas'.

"In the medium term, a low and stable inflation is a necessary precondition for securing India's growth prospects," Subbarao said.

The wholesale price-based inflation in India stood lower at 6.87 per cent in July against 7.25 per cent in June. But that figure is still above RBI's comfort level of 5-6 per cent.
To criticism that the tight money policy is not helping to reduce inflation, Subbarao pointed out that inflation has come down from 11 per cent in 2010 to below 7 per cent in July this year despite volatile commodity prices.