Our Bureau

New Delhi, Feb. 27

The Government is optimistic of ending this fiscal at a 5 per cent inflation level, despite the volatile global petroleum prices. However, cautioning against the possibility of high and volatile global petroleum prices imparting "uncertainty" in the inflation outlook, the Economic Survey has said this could reflect on interest rates and investment in the country.

"This inflation uncertainty, together with the unresolved global macro economic imbalances cast a shadow on the interest rate scenario. A continued firming up of global interest rate beyond a point poses the risk of dampening the domestic investment boom," the survey said.

Inflation `manageable'

The survey, however, added that by discounting the uncertainty associated with high and volatile international petroleum prices, the near and medium-term inflation risks in the Indian economy appear to be "manageable." "Given the sufficient foreign exchange reserves and Government's commitment to further trade and tariff reforms, strict fiscal prudence, monetary discipline and orderly movement of the exchange rate of rupee, the annual inflation rates in terms of both wholesale and consumer price indices are likely to witness declining trends in the medium term and to remain within tolerable limits," it forecast.

It said the overall wholesale price rise in most of 2005-06 remained below 5 per cent and is likely to remain around 5 per cent at the end of March 2006, thanks to "sound macro-economic management" along with effective management of supply and demand for essential items. Wholesale price index inflation averaged 6.5 per cent last fiscal.

Fuel prices the culprit

Higher fuel prices were the main contributor to inflation this fiscal, followed by primary and manufactured products. The low inflation in primary articles observed in the previous two years came to an end with supply shortfalls in commodities such as onion and potatoes and a firming up of demand for minerals.

(This article was published in the Business Line print edition dated February 28, 2006)
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