Managing inflationary risk biggest challenge: Rangarajan

Coimbatore, Feb 4 (PTI) Admitting that inflation triggeredby foodgrain price rise did not moderate as expected by thegovernment, C Rangarajan, Chairman, Economic Advisory Councilto the Prime Minister, today said managing inflationary riskwas the biggest challenge in the short run.

Inflation was triggered by the increase in foodgrain pricesand the government expected that it would moderate in 2011 butthis did not happen, he said here.

However, he said the 8.43 per cent year-on-year inflation,as measured by Wholesale Price Index as of December, 2010, wasexpected to come down to around seven per cent by March 2011.

Delivering the G K Sundaram Endowment Lecture organised bySouth India Cotton Association, he said managing inflationaryrisk, particularly foodgrain price inflation, was the biggestchallenge in the short run as "we had two years of highinflation."

The food price inflation last year was triggered by rise inprices of vegetables, fruits and eggs, meat and fish, he said,adding the primary answer for food price inflation lay inimproved agricultural production and increasing emphasis onthe production of vegetables and fruits as well as eggs andmilk became necessary.

On the growth of economy, he said it would clock nine percent in 2011-12. While agricultural growth rate may moderate,the industry and service sectors would grow faster.

India''s savings rate had touched 34 per cent of GDP and theinvestment rate exceeded 36 per cent of GDP, which shouldfacilitate nine per cent growth in a sustained way, he said.

"However, we also needed to remove the constraints that maycome in the way, for this to happen," he said. .