By laksh5382 
The differences between the Center and the Reserve Bank of India over interest rate cuts and inflation targeting seem to be deepening. On Tuesday, Chief Economic Adviser (CEA) V Ananth Nageswaran said retail inflation was largely driven by a few key commodities – tomatoes, onions, potatoes (TOP), gold and silver. He said that by excluding these items, the inflation rate will fall to about 4 percent.
This comes a day after Finance Minister Nirmala Sitharaman stressed that bank interest rates need to be made much more affordable at a time when industries want to grow faster and build capacity. Commerce Minister Piyush Goyal had also last week said that the RBI should cut interest rates and considering food inflation to choose the rate cut option is a flawed theory.
Speaking at SBI’s 11th Banking and Economics Conclave, Ananth Nageswaran said: “We know that CPI (consumer price index-based) inflation is being strongly influenced by some items. If you remove tomatoes, onions, potatoes (top), gold and silver, the headline CPI rate is 4.2 percent.
“So, the items – top, gold and silver – which together account for 3.4 percent by weight, accounting for more than a third of the 6.2 percent inflation rate you saw for October.”
The latest Economic Survey, which was put together by the CEA team, noted that India should revisit its current inflation targeting framework and explore a framework that will target the inflation rate by excluding the volatile food component. .
This is contrary to the position of RBI. In his August monetary policy statement, RBI Governor Shaktikanta Das emphasized that the target of the Monetary Policy Committee is headline inflation with food inflation having a weight of about 46 per cent.
“With this high share of food in the consumption basket, food inflation pressures cannot be ignored. Furthermore, the public at large understands inflation more in terms of food inflation than other components of headline inflation.
“Therefore, we cannot be complacent just because core inflation has fallen significantly,” Das said.
The second and equally important reality, he said, is that higher food inflation adversely impacts domestic inflation expectations, which has important implications for the future trajectory of inflation. The rate-setting Monetary Policy Committee (MPC) has kept the repo rate steady at 6.50 per cent in its last 10 consecutive meetings to curb inflationary pressures. The next policy meeting is scheduled for December.
Trump likely to impose import duties
Meanwhile, the CEA said India has a bilateral trade surplus with the US in both goods and services.
To a question on the possibility of import tariffs being imposed under the Trump regime, he said, “So, there may be pressure… in some areas it would be beneficial and in some areas we may necessarily have to reduce some tariffs.” To become competitive.
“So, I don’t think it’s necessary for us to assume that this will be negative for India… If world export growth itself is going to be a challenge, then exports, in itself, are not necessarily going to be a challenge for India. The most effective engine of growth.”
Trump’s presidency can also be very useful in terms of keeping energy prices affordable from the Indian perspective.
“And we need to get the resources to be able to grow, to fund our energy transition, to invest in new technology, R&D, etc… So, in that sense, the positives outweigh the negatives,” the CEA said. It can prove costly.”