Food prices must be reined in: Rangarajan

The prime minister's economic panel on Thursday voiced the need to control food inflation from the current 17 per cent level to check an upward spiral in manufacturing inflation.

"Food prices must be controlled, otherwise they have a tendency to lead to manufacturing inflation," Prime Minister's Economic Advisory Council chairman C Rangarajan said in New Delhi.

He said this will require monetary action by the Reserve Bank, especially towards managing money supply.

"Inflation is a matter of concern, particularly food inflation. There is a concern of rising food prices," Rangarajan said.

Food inflation rose to 17.47 per cent in the third week of November against 15.58 per cent in the previous week.

Earlier this week, there was heated debate on food prices in Parliament. He said overall inflation would be in the range of 6-6.5 per cent, as expected by the council.

"But it should be brought down." Overall inflation doubled to 1.34 per cent in October compared to 0.50 per cent in the previous month as food items have less weight on the wholesale price index.

Manufactured products have over 60 per cent weight on the wholesale price index. Manufacturing inflation was just 1.36 per cent in October against 9.41 per cent a year ago.

In its last monetary review, the RBI took only marginal steps to curb money supply by increasing the statutory liquidity ratio, the amount of money that banks park in cash, gold and government securities, by one per cent to 25 per cent.

Since, most banks have been maintaining the SLR at over 25 per cent, it would not have desirable impact in controlling money supply, analysts said.

It also discontinued the special funding facility for banks to finance liquidity-strapped mutual funds, which too would not have that much impact as not many funds were using this facility now.

With the economy growing by 7.9 per cent in the second quarter of this fiscal, up from 6.1 per cent in the previous three months period, analysts said RBI can now focus on curbing inflation.