Managing food inflation the biggest challenge, says Rangarajan

While the economic growth, investment climate and India's comparative advantage in the services sector looks promising, one disturbing element is the rise in the inflation in recent years, said the Chairman of the Economic Advisory Council to the Prime Minister, Dr C Rangarajan.

Delivering the Fifth G K Sundaram Endowment Lecture series organised by the South India Cotton Association at the Nani Palkhivala Auditorium here, he said there were a few areas where immediate engagement of the policy makers was needed.

“Managing inflationary risks particularly food grain price inflation has been the biggest challenge,” he said, adding, “we expected it to moderate in 2010-11, but that did not happen.”

He, however, expressed confidence that it would come down to around 7 per cent by end-March . “Already the price of vegetables, fruits and egg, meat and fish has started to drop. While the increase in vegetable prices has been significant, the price index for all cereals showed a decline on a year-on-year basis,” he told press persons after releasing a book ‘SIMA : A Journey through 75 years' this morning at the Le Meridian here.

According to him, food price inflation could be tackled only by improving agricultural production.

Five challenges

Highlighting the five challenges on the way forward, Dr Rangarajan said, “stepping up agricultural growth would be the primary challenge considering that our agriculture is characterised by low productivity both of land and labour. The most critical problems are low yields and the inability of the farmers to exploit the advantages of the market because of lack of infrastructure to transport the produce from the farm to the market.

Clearly we need to modernise and diversify our agriculture sector by improving both the forward and backward linkages. These will include better credit delivery, investment in irrigation and rural infrastructure, improved cropping pattern and farming techniques and development of food processing industry and cold chains across the entire distribution system. Agricultural growth is critical for expanding employment, generating broad-based growth and sustained poverty reduction.”

Framework for investment

He said the second critical constraint to growth was infrastructure deficit, more particularly in power. Stressing the need to put in place appropriate legal, regulatory and administrative frameworks to attract domestic and foreign investment, he said, “we also need to address issues of pricing and cost recovery, and the system should be made more transparent and explicit. Fiscal consolidation is yet another critical challenge and a necessary pre-requisite for sustained growth,” he said delivering the lecture on ‘Economic Growth and the Challenges Ahead'.

This followed by the need to build social infrastructure –particularly of primary education and basic health and the final challenge as we move forward would be ‘good governance'. “While good policies are necessary, they are not sufficient if not accompanied by good governance,” Dr Rangarajan added.

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