Inflation rate to fall to 5.5 percent by fiscal end: Rangarajan

CHENNAI - The rate of inflation is expected to fall to 5.5 percent by the end of this fiscal. By December, the inflation will be around 6.5 percent, down from the current 8.5 percent, said India’s top economist.

Speaking to reporters on the sidelines of a function here Thursday, chairman of the Prime Minister’s Economic Advisory Council C. Rangarajan said: “The Reserve Bank of India’s (RBI) stand on inflation will be known over the next 6-8 weeks, based on the inflation rate. I think the steps taken by RBI have been in the right direction.”

According to him, inflation is now more generalised and is no longer restricted to food items.

As such, the RBI’s decision to raise the repo and reverse repo rates recently is right and further action depends on the inflation trend, he said.

Rejecting that the stock market rally would stoke inflation, he said the Indian economy was doing well and it was better than many other countries in the context of international financial crisis.

“The foreign inflows is a reflection of fundamentals,” Rangarajan said.

He said there was no direct relation between inflation and capital inflows.

According to him, the foreign direct investments and funds from foreign institutional investors (FII) may not be very high to cover the current account deficit.

He said the addition to overall foreign exchange reserves due to the capital inflows may not exceed $15-20 billion.

According to him, the floods may impact the prices regionally. The foodgrain production is expected to be 10 percent higher than last year.

Ruling out double dip recession - negative growth of gross domestic product after positive growth or a recession followed by short recovery post recession - in India, he added the recovery would be slow and not rapid.