Rising income levels in rural areas, high fiscal deficit cited as reasons

Despite inflation falling from peak levels, seven per cent plus is still above comfort levels, said Reserve Bank of India Governor D. Subbarao while addressing the convocation at Indira Gandhi Institute of Development Research (IGIDR) set up by the RBI.

Subbarao said this was due to rising income levels in the rural areas, global oil prices, high fiscal deficit, and demand pressures.

Moreover, Subbarao said that India was unique in comparison to other emerging economies where growth and inflation have been decelerating simultaneously.

This, he said, could be due to supply constraints, especially in infrastructure, demand-supply imbalances, high fiscal deficit which many of our peer countries don’t face, and steeper currency depreciation.

On the criticisms faced by the RBI for not being able to bring inflation down and keeping growth low, the Governor said he sympathises with those concerned about growth but those hurt by inflation must not go unheard.

Voice of the poor

“People worried about declining growth are typically quite articulate…they have a platform to express their concerns. I have sympathy with that view and am not saying that it is an invalid criticism... but people who are hurt by inflation, a large majority of the poor, their voice is not heard.

“So, it is important for the Government, public institutions such as Reserve Bank, and graduating students to not only pay attention to what comes your way but go out of your way to find what is important in making decisions.”

beena.parmar@thehindu.co.in

(This article was published on February 11, 2013)
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