The chief economic advisor Kaushik Basu said on Wednesday that government may have to live with higher level of inflation as the country integrates itself with the world and made a strong case for adopting a different policy approach to tackle price rise.
Food inflation, which touched 14.44% level for the week ending December 18 has already become a cause of concern for the government. The high inflation has been fuelled by a spurt on certain food items such as onions and tomatoes. In case of onion prices, Basu said the issue should be handled through administrative steps such as anti-hoarding measures as well as taking steps to prevent possible monopolies in certain markets through anti-trust laws.
?There are forms of implicit cartels working among the traders that block the movement of new entry, the appearance of new players,? Basu pointed out. While surge in food prices cannot be controlled by monetary action, he said it is more of the issue of supply constraint.
Home minister P Chidambaram also voiced similar concerns that the existing tools ?in hand? are not enough to control food prices.
Meanwhile, Prime Minister?s Economic Advisory Council chairman C Rangarajan said on Wednesday that the government should exercise caution while deregulating diesel prices and should undertake the exercise only after the inflation rate softened. ?Inflation at this level is uncomfortable. I expect it to be around 6.5% by March end,? Rangarajan said.