Good monsoon can cool prices: Rangarajan

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Even as prices of essential commodities continue to spiral upward, the government expects inflation to ease significantly in the next few months. “Inflation is likely to come down to 6% in the next three to four months after which it can come down to 5 to 5.5% depending upon the monsoon and other factors,” Prime Minister’s Economic Advisory Council (EAC) chairman C Rangarajan said on Monday.

The monsoon is expected to be good this year, which may help curb inflation, he said on the sidelines of the Fifth Asia Tax Forum adding, “much will depend upon the monsoon and much will also depend on the way how the output behaves.”

Despite a number of fiscal measures by the government as well as monetary efforts by the Reserve Bank of India, inflation has risen unabated to 7.61% according to latest data for the week ended and has remained at over 6% in recent months.

With international oil prices at an all-time high, Rangarajan said there was a need to revisit the tax structure on petroleum products. He later explained that the EAC had recommended an ad valorem tax on petro products, which has been partly adopted by the finance ministry. So when oil prices reduce, the tax rate gets partly adjusted, he said.

He also pointed out that the tax on petroleum products also has an environmental aspect as it restrains the consumption of the exhaustible resource. Taxes imposed on such products also help restrain their consumption to a certain extent, he pointed out.