Economic prosperity fuelling food inflation: Raghuram Rajan

Economic prosperity is fuelling food inflation in the country, Chief Economic Adviser Raghuram Rajan today said while making a case for increasing productivity to fight price rise.

In his first media interaction after assuming charge, Rajan justified the diesel price hike saying there is a need to link domestic fuel prices with international rates to curb fiscal deficit.

"One of the concerns of the last few years has been food inflation, which has been not so much within the control of the government, but which has been sort of because our population has become richer, a good thing and therefore demanded more sort of higher end food products like, milk, egg, meat rather than the old cereals," he said.

Food inflation has hovered above the 10 per cent mark for most part of the current fiscal, only to decline to 9.14 per cent in August. The overall inflation stood at 7.55 per cent.

"In order to rebalance or reduce food inflation we have to produce more of that. Which means more productivity. So productivity is going to be part of the fight against inflation," he said.

Rajan said the less sowing of kharif food grain would put "upward pressure" on prices.

Country's foodgrains production is projected to decline by 10 per cent in the kharif season of this year at 117.18 million tonnes due to deficient monsoon and drought in some states.

On the government's recent decision to hike diesel prices by over Rs 5 a litre, Rajan said "the best policy is to move towards true cost of the fuel ... If you can not move prices towards international level then you may resort to differential tax on vehicle".

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