India to take a view on exit next year; food prices to ease soon

New Delhi, Nov 8 : Echoing the perception of Prime Minister Manmohan Singh that India may consider winding up fiscal stimulus packages next year, Planning Commission Deputy Chairman Montek Singh Ahluwalia today said the country will take a clear view early next year as to whether it would be time to decouple from fiscal incentives and accommodative monetary policy.

Dr Ahluwalia told reporters here that early next year when significant recovery would have taken place, it would be time to review policies that were formulated at the time of crisis.

Asked whether the monetary policy could move in consonance with exit from fiscal stimulus packages, he said there is never a case that monetary and fiscal policy move in opposite direction.

Dr Ahluwalia said all authorities are satisfied with the manner in which liberalised monetary and fiscal policies have played out to get the economy out of the morass of the slowdown.

The remarks from the Deputy Chairman of the Plan Panel came after he addressed a panel discussion on 'Economic Update: India's Outlook' at the India Economic Summit here.

Earlier, inaugurating the three-day summit, the Prime Minister said India would consider widening up from the fiscal stimulus packages next year.

The Indian policymakers seemed to have suddenly taken a U-turn on exit policy. Last week, Finance Minister Pranab Mukherjee made it abundantly clear that fiscal stimulus will continue unless sound recovery takes place.

Nevertheless, the Reserve Bank of India, in its recent review of credit policy, had given a signal for exiting from accommodative monetary policy by raising the SLR by one percentage point.

The global community is watching with keen interest what countries do on fiscal stimuli. The G20 communique enjoins upon nations to remain coupled in recovery as they have remained coupled in crisis. It has called upon various nations not to exit from fiscal stimuli and accommodative monetary policy.

Dr Ahluwalia said inflation was not a cause of great worry, though the situation on price front needs to be closely monitored.

Admitting that high food prices were driving the inflation rate, Dr Ahluwalia, however, said that food inflation may patter out by the end of this financial year, primarily on account of good rabi crop as the monsoon next year is expected to be normal.

This is notwithstanding the fact that winter crop may get affected too by late rains, he said. The monsoon, however, is expected to be near normal next year.

He, however, said that the distorted picture of food inflation was also on account of misappropriate rates in the Consumer Price Index (CPI). For instance, the CPI gives a weight of 65 per cent to food articles, while the weight should not be more than 30 per cent, going by NSSO data on food consumption.

To a question of hue and cry on high vegetable prices, Dr Ahluwalia was of the view that these will ease early next year.

Saying that the government has little role to play with regard to food inflation, especially vegetables, he said the government has enough stocks of foodgrains.

--UNI

(c) 2009 Published with permission from United News of India.
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