Indian inflation still seen as threat

India's economy is still showing signs of overheating in some areas despite a drop in overall inflation in recent weeks, the prime minister's top economic adviser said yesterday.

C. Rangarajan, who heads the Indian prime minister's Economic Advisory Council, said he was also concerned over the surge in foreign money coming into India, complicating efforts by monetary authorities to cool the economy.

The Indian economy has grown more than 8.5 per cent annually over the past four years, boosting incomes and consumption, and in the process driving up demand and prices. In some areas, such as real estate india , prices have nearly doubled in two years, stoking fears that the economy might be overheating.

"We are seeing some signs of cyclical overheating," Rangarajan told reporters on the sidelines of a business conference in Mumbai. "This happens in all economies in a period of rapid economic growth when capacities tend to get utilized fully and demand pressures persist."

Rangarajan said, however, that he expected companies across the country to boost investment and expand production capacity.

According to the latest government data, the inflation rate based on wholesale prices eased to 5.06 per cent in the week ended May 19 from 5.27 per cent in the preceding week. The inflation rate stayed above 6 per cent in the first quarter.

The current levels are still high compared to economies that share the same features with India.

India's rapid economic expansion has lured foreign companies, but their increased investment has also fuelled inflation.

Source://thestar.com