Arvind Panagariya is not worried about India's inflation rate. Here's why

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Former Vice Chairman of Niti Aayog, Arvind Panagariya, is not worried about India's inflation rate as he feels that the main triggers, especially external factors, are showing signs of abating. In an exclusive interaction with Moneycontrol, Dr. Panagariya, who is also a Professor of economics at Columbia University spoke about the concerns around inflation and whether something in the Union Budget can be done to cushion its impact.

"Inflation is not a budget issue it is a central bank issue. The only way the budget can help is through fiscal restraint. We cannot say we want feel-good consumption on the one hand, and on the other, we complain about inflation. These are contradictory forces," the storied economist said.

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"If inflation is a concern, then the fiscal policy ought to have fiscal consolidation in place and it should begin with the new year. We were impacted by external factors which are abating now. In the United States, we are seeing incipient signs of a recession. Though total employment remains robust we’re also seeing a lot of job losses," he added.

Speaking about the back-to-back interest rate hikes Panagariya said, "In fact, the RBI should seriously think whether it wants to continue on its current path because when you raise interest rates they get transmitted to borrowers rather easily. But when you reduce them the transmission takes longer. We ought to bear that in mind."

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India's headline retail inflation dropped to 5.88 percent in November from 6.77 percent in the previous month. It may be recalled that inflation in the January-March quarter stood at 6.3 percent, in the April-June quarter it was 7.3 percent, and 7 percent in the July-September quarter. The MPC is mandated to keep inflation in the 2 per cent to 6 per cent band as per the rule.

The RBI on December 7 retained its retail inflation forecast for the current financial year at 6.7 percent.

“The battle against inflation is not over,” the RBI Governor Shaktikanta Das had said while announcing a 35-basis-point increase in the repo rate to 6.25 percent.