Tight money policy means more capital inflows: ADB
Lower middle class worst affected by inflation
Infrastructure development, farm productivity can help
With the Wholesale Price Index (WPI)-based overall inflation still hovering at around 10 per cent, the Asian Development Bank (ADB) on Thursday said that it was likely to scale up its inflation forecast for India by the end of September.
Speaking to the media after the launch of the ADB’s flagship annual statistical publication ‘Key Indicators for Asia and the Pacific 2010′ here, the Bank’s Chief Economist Jong-Wha Lee said: “After seeing the high inflation in the first half of the fiscal, we plan to revise upwards the inflation forecast above five per cent in our next ‘Economic Outlook’ slated for September 28”.
Inflation in India, Dr. Lee pointed out, is primarily from the supply side and the double-digit food inflation is affecting the lower middle class the most as their share of income on food and beverages is high.
Focus on infrastructure
Dr. Lee also noted that while India was doing well in reducing poverty and nurturing the middle class to attain sustainable growth, the government must focus on providing quality education and infrastructure development.
On the tight money policy stance adopted by the Reserve Bank to contain the price spiral, the ADB chief economist cautioned that while “tight monetary policy is the right step”, excessive hike in rates “would also attract more capital inflows” and related problems.
Dr. Lee felt that if the Indian economy continued to grow with improvement in farm productivity and infrastructure development, these together could also result in lowering inflation. For the present, “withdrawal of fiscal stimulus is the right direction ahead … it’s only a matter of timing and speed,” he said.