Inflation is still Indias biggest challenge, experts
warned yesterday as the countrys central bank cut
interest rates by a quarter-point.
Changyong Rhee, the Asian Development Banks chief
economist said that inflation was a serious issue for
India. Speaking to Emerging Markets, he said it
was the largest challenge currently facing politicians and
legislators trying to juggle two balls at the same
time high prices and slowing growth.
The Reserve Bank of India cut its policy rate by a quarter
of a percentage point to 7.25% yesterday, in line with
Rhee said the best that Delhi could hope for in the current
climate was to stabilise inflation around the 7.5%
mark, a level that wasnt really very low at
Few countries historically suffer from inflation quite the
way India does. Wholesale prices have eased in the past 12
months, though they still rose by just shy of 7% year-on-year
But it is consumer prices that really hurt a country
reckoned by the World Bank to be home to a third of the
worlds poor. Consumer price inflation rose in March at an
annualized rate of 10.4% in rural India, and by 10.3% in towns
and cities. They are among the highest rates in Asia, and
several percentage points above the other four
Chandra Kochhar, CEO and managing director of Indias
private lender ICICI Bank, described inflation as one of three
key challenges facing Asias third-largest economy, along
with deficits and a stumbling economy. Indias current
account deficit has widened over the past year to 5%, while the
economy was this week tipped by the World Bank to grow by just
6.1% in 2013.
There is an obvious solution to inflation, albeit one with
political implications. Last year, the government finally
passed a foreign direct investment (FDI) law permitting foreign
corporates and investors to own a majority of multi-brand
retail outlets in the country, opening the door to global
supermarket names like Carrefour, Tesco and Walmart.
Those mega chains may lack supporters in some Western
countries, but in the developing world they are often godsends.
The introduction of hypermarkets to Eastern Europe in the 1990s
helped boost employment and slash stubbornly high inflation, a
phenomenon known as the Walmart effect.
In India, this has mixed connotations. Thousands of
family-run dime-store operations will go to the wall in the
coming years. However an expanding middle-class is likely to
fall in love with air-conditioned supermarkets offering choice
and low prices.
Rhee said he believed food inflation in India was largely a
result of supply and not demand constraints and that
supermarkets could soothe Indias inflation headache just
as they once did in central and eastern European countries.
But foreign supermarket chains have not really been tested
yet in India, and the finer details of last years retail
FDI law have yet to play out in public. Multi-brand retailers
will remain barred from a few states that refused to sign the
The main challenge will be convincing Indias leaders
to have the courage of their own convictions, said Rhee.
Politicians do think about poor people, and they do care
about how many small shops will lose out, he said.
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