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Inflation, CAD to ease up in coming months: Mayaram

New Delhi, Jan 9 (PTI): The government expects inflation to come down to moderate levels, but the demand- supply gap of essential food items has to be bridged to keep prices under check in the long run, according to economic affairs secretary Arvind Mayaram.

“Inflation will be a problem. We believe inflation in immediate future will come down marginally, but in the long run if we need to go down to the low single digit inflation numbers, we will have to continue to work towards increasing production and improving the logistics for movement of vegetables,” he told PTI.

WPI inflation rose to a 14-month high of 7.52 per cent, while the retail inflation was in double digits at 11.24 per cent in November. The rise in inflation can be attributed mainly to price rise in vegetables and protein-rich items.

“There is in-elasticity of demand in terms of price as far as food is concerned,” he said adding there was an urgent need to amend the Agricultural Produce Marketing Committee (APMC) Act.

He said the APMC Act is “now beginning to hurt” by restricting movement and dissemination of food and cereals. The food distribution needs to be more open and market oriented, he said.

Mayaram said spurt in demand for food products, driven by improvement in living standards, is also adding to inflationary pressure. For example, he said, egg consumption has increased from 18 per person per annum in 1993-94 to 33 eggs per person in 20 years time.

Mayaram said the government also expects the current account deficit (CAD) to come down to about $50 billion in the current financial year, or less than five per cent of gross domestic product, following higher exports and a sharp fall in gold imports.

The CAD, which is the difference between inflow and outflow of foreign exchange, touched an all-time high of $88.2 billion or 4.8 per cent of GDP in 2012-13.

“Exports is doing fairly well ... month on month there might be slight blip here and there, but draw a line it will be straight and secular. It is not curving down. We are quite confident that CAD should be around $50 billion for the financial year,” Mayaram told PTI.

He said the trade deficit, which is the difference between export and import, has narrowed to $9.2 billion in November, from $10.6 billion in October.

The CAD in the first half (April-September) of the current fiscal came down to $26.9 billion (3.1 per cent of GDP), from $37.9 billion (4.5 per cent of GDP) in H1 of 2012-13.

Mayaram said gold imports fell to 19.3 tonnes in November, from 162 tonnes in May.

In order to restrict inward shipment of gold, the government and the Reserve Bank of India had announced various measures, including hiking import duty to 10 per cent. With the decline of imports, there is a clamour that the government should ease the curbs as they are encouraging smuggling.