Inflation May Have Peaked In India

Chief Economic Adviser V. Anantha Nageswaran is optimistic about India’s prospects amid the current economic conditions

Chief Economic Adviser V. Anantha Nageswaran, who took charge earlier this year, is at a loss to understand the pessimism among global think tanks on India’s medium-term growth prospects. India, the CEA says, may be poised to repeat the credit boom it had witnessed between 2003 and 2008, though the magnitude may not be the same. In an exclusive interview with Business Today’s Global Business Editor Udayan Mukherjee, Nageswaran says inflation has peaked in India and financing the current account deficit for the next two years isn’t an insurmountable challenge, adding that he is optimistic about the country’s economy.

Q: The two big problems facing the world today are inflation and a growth slowdown. Till a couple of months ago, all the worry seemed centred around inflation, but in the last few weeks it seems to have changed to slowing growth and recession. Of these two devils which we are battling globally, and locally, which worries you more?

A: As you correctly put it Udayan, in the last few weeks, the focus has indeed shifted to growth concerns rather than inflation concerns and the reason is commodity prices, particularly that of crude oil. Commodity prices have declined meaningfully in the last several weeks, whether it is the price of crude oil, industrial metals, some food items, and the cost of shipping reflected in the Baltic Dry Index; even semiconductor prices have begun to come down and the general feeling, therefore, [is that] central bank tightening will slowly bring inflation back under control.