Overall inflation is expected to fall to 6.5 per cent by end of this year, and 5.5 per cent by March, Prime Minister's economic panel said today, even as food inflation for the week ended September 11 soared to 15.46 per cent on supply disruptions on account of rains and floods. Week on week, food inflation climbed 0.36 percentage points from 15.10 per cent on September 4.
However, on overall price rise, Economic Advisory Council Chairman C Rangarajan said, "As per the new series for August (2010), the wholesale price index (WPI) showed an inflation of 8.5 per cent. This is one per cent less than the old series."
He said the difference arose because of changes in the weights attached to different commodities. Certain commodities which witnessed sharper increase in recent period have also registered a lower weight in the newer series and "...that's why we have a lower inflation", he added.
Rangarajan said, "Our own estimation is, according to the new series, the inflation will fall to 6.5 per cent by end of December and 5.5 per cent by March (2011)." The new inflation series with 2004-05 as the base year has 241 more items than the old series with 1993-94 as the base year, which reflected the price rise in 435 articles.
Edibles and non-edible items widely used by the middle class, like ice-cream, mineral water, microwave ovens, washing machines, gold and silver are reflected in the new WPI series. On whether the Reserve Bank would further raise its lending (repo) and borrowing (reserve repo) rates to curb consumer spending and tame inflation, Rangarajan said it would depend on the behaviour of inflation in the next 6-8 months.
Last week, RBI increased short term lending rate by 0.25 percentage points to 6 per cent, and borrowing rate by 0.50 percentage points to 5 per cent. "RBI steps are in the right direction. Inflation is no longer confined to food items, it has become more generalised. Manufacturing sector has also shown inflation a little below five per cent", Rangarajan said.
On the impact of floods in the north on food production, he said there might be a temporary shortage. "There may be some increase in price locally. But the impact on grain production is not likely to be adverse." On government borrowings, Rangarajan expressed hope that it would be maintained within the overall limit. "The overall fiscal deficit will be maintained at budgetary limit."
On the stock market Sensex crossing the 20,000 mark, he said the performance of the country's economy was much better than that of many other nations. "It is a reflection of the fundamentals and also a reflection of inflow of funds through FII's (Foreign Institutional Investments)".
Following the restructuring package devised by Asset Reconstruction Company (India) Ltd (ARCIL), the firm had converted Rs 30 crore of its Rs.2,800-crore debt into equity shares on a preferential basis to lenders. SPIC also divested its stake in its subsidiary and joint venture firms during last year and sold a few of its key properties that reduced its debt liability to the extent of Rs 635 crore. This apart, the company promoters too have infused Rs 50 crore into the company.