Rakesh Mohan, deputy governor of the Reserve Bank of India (RBI), on Thursday, said that India?s inflation is still higher than world inflation, and hence needs to be brought down further.
?Our inflation is still high by world standards and needs to be brought down further,? said Mohan.
Mohan was speaking on the sidelines of his speech at the conference ?Growth and Macroeconomic Issues and Challenges in India? organised by the Institute of Economic Growth, New Delhi, on Thursday.
India?s headline inflation, as measured by the wholesale price index (WPI), rose to a six-month high of 4.11% for the week ended January 26 compared with 3.93% a week earlier.
While the central bank is aiming for inflation close to 5% by March-end and 4.5% by January 2009, its medium-term target is to bring down the headline number to 3%.
During its quarterly review of the monetary policy on January 29, the RBI said that risks to inflation from high and volatile international prices of fuel, food and metals appear intensified.
While WPI inflation is around 4%, inflation based on the consumer price index is hovering around 6%.
He also insisted on the need for improving our understanding of the structure of inflation in India.
Talking about higher domestic interest rates, he said that open debt markets can attract large capital flows and add to the existing volume of capital flows, which are in any case well above the financing requirement of the country.
?If the debt markets were open, such excess capital flows would have to be necessarily sterilised by the Reserve Bank in order to maintain domestic macroeconomic and financial stability. This would further add to the sterilisation costs already being borne by the country?s financial sector and the government,? Mohan said.
The deputy governor also said that continued fiscal correction through restructuring and reduction in subsidies, and continued attention to the mobilisation of tax revenues is necessary to enhance public sector savings that can then finance increase in levels of public investment.
?Efficiency in the allocation and use of resources would be helped greatly by better basic infrastructure in both rural and urban infrastructure: much of it would need enhanced levels of public investment,? he said.