I will not be surprised if inflation continues to hover around 6% despite four times hike in Repo Rates coupled with hike in CRR and liquidity management through MSS by RBI. In India, the inflation management is more to do with the supply side management than the demand side. Hence the monetary measures will have to be backed by supply side management which includes importing the commodities which are in short supply. Fortunately, with a robust forex kitty, importing such commodities should not have been a problem. The problem here is tackling the supply side bottleneck such as port congestions. A tight monetary policy is effective for a short period, beyond which it may work at the cost of growth.
The other issue that concerns inflation is the authorities' plan for a GDP growth of 8.5-9.0% in the next couple of years. One should not, therefore, be surprised if high inflation rate prevails relative to RBI projection in near future.
