FinMin endorses RBI move

By Abhijit Neogy and Swati Khandelwal, CNBC-TV18

The Finance Ministry has endorsed the latest round of monetary action by the RBI to quell inflationary pressures. But corporates and economists say, though necessary, these measures will come at a high cost.

A day after the RBI stepped in with expected monetary action, the Finance Ministry endorsed the RBI's action. The government also says that it could even resort to more fiscal action to restrain prices. A defensive government said the growth story is intact but corporates and economists do not quite agree.

“The fear is that growth may slow down. The government's revenue also depends on this. India's optimism is based on growth,” said Harshpati Singhania, MD, JK Papers.

Economists say while inflationary expectations may be tamed, the government will need to revise downward growth projections.

“Judging by the double digit inflation figure, our expectation is that monetary tightening isn't over. So, we are maintaining our 7.5 forecast,” said Shubhada Rao, Chief Economist, Yes Bank.

The Planning Commission has projected that inflation may be as high as 10% till the end of the year. But if crude continues to surge and the commodity cycle remains strong, the inflation scenario could worsen before it gets better.