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Rediff.com  » Business » Inflation: Big challenge for emerging economies

Inflation: Big challenge for emerging economies

By Devjyot Ghoshal
April 27, 2011 12:29 IST
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India's ongoing inflation-related worries must not be seen in isolation. Instead, it is a challenge being faced by several emerging economies, the finance ministry's chief economic advisor Kaushik Basu said on Tuesday, while also calling for concerted international action to deal with the issue.

Inflation has emerged as a major cause for concern ahead of the Reserve Bank of India's monetary policy announcement next week, when further monetary tightening is expected to curb rising prices. The central bank has already hiked key policy rates eight times in the last year.

But inflationary pressures, Basu explained at an event organised by the Indian High Commission and ISAS, had begun building up across emerging economies for some time now, but "since India pulled out of the global recession faster than others, inflation also came to India faster than others".

"Some 15 days ago, I was at the G20 meeting in Washington and also the IMF-World Bank annual meetings, (where) the dominant story was inflation, which was not the case one year ago. One year ago, it was India alone, and now is virtually all emerging economies inflating very rapidly," he said.

"Unlike on earlier occasions when you would see idiosyncratic inflation behaviour - it happens in one country but doesn't in another country - what we are seeing certainly over the last 6-7 months, and now it is just across the board, is that virtually all emerging economies are inflating, and industrialised countries are not growing," Basu added.

However, he emphasised the problem in India was on the ebb, contrary to what other emerging economies were currently experiencing.

"For India, inflation is still high. We are inflating at about 8 per cent, but it's on a downward trajectory. In most other emerging economies, inflation is going up and several have crossed India, so now it's becoming a global story," he said.

Taking the example of Vietnam, where consumer prices have risen over 17 per cent since last year, Basu said there is a feeling that "monetary and fiscal policies are not being as effective in controlling inflation as these used to be."

"Yes, there are things that we can do within our own countries and we are working on policies, but this also something that has to be taken up at the level of G20 and various international fora. The whole strategy of inflation management is beginning to change and some of our current problems arise from the fact that we are really adjusting to a new world. But fortunately in India, the direction is right," he said.

Inflation in India, Basu added, had come down to over 8 per cent currently from 11 per cent in April last year.

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Devjyot Ghoshal in Singapore
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