Even as the Reserve Bank of India (RBI) is exiting its accommodative monetary policy, economist and policy doyen C Rangarajan says that soaring food price inflation could warrant a stricter stance from the central bank. In an interview with P Vaidyanathan Iyer and Gunjan Pradhan Sinha, the former RBI governor and the present chairman of the Prime Minister’s Economic Advisory Council (PMEAC) spells out key concerns over managing the situation in the aftermath of the global financial crisis. Excerpts:

Dr Rangarajan, what concerns are on the top of your mind, which the government really needs to address right now?

We must see that the price rise is brought within reasonable limits in the short term. The immediate concern is that food prices, especially that of rice, do not rise fast. Wheat prices have not risen that sharply but rice prices have. The fear of a lower kharif production this year has generated certain expectations contributing to rise in prices of rice. But pulses have been an endemic problem. The supply has fallen short of demand continuously, and we have been importing pulses to plug the gaps. But import is also very difficult as there are very few exporting countries for the kind of pulses we need. Whenever there is additional scarcity it becomes more serious. Expectations have played a big part in pushing up the prices. They have been fed by a deficient rainfall of 22 per cent and a lower cultivation area. The cultivation area this year has also been 5.8 million hectares less, which is about 8 per cent lower than usual. This has lead to the expectation that shortfall in rice production could be about 13-15 million tonnes. The EAC itself estimated shortfall at 13 million tonnes. Others say it could still be higher. The Department of Agriculture has said that there would also be a short reduction in coarse grain supply. Even though scarcity will emerge later, expectations have pushed up prices.

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