Mumbai: Reserve Bank deputy governor Subir Gokarn on Monday said increase in prices of "non-traded" commodities, particularly on the food side, has led to a spike in inflation in the last few years even as global commodity prices have softened.
    
Gokarn said that there has been a "divergence" from the trend wherein the headline inflation number is not moving in sync with global commodity prices in the last few years.
    
"One very critical source (for it) is non-traded commodities (which are not traded on commodity exchanges), particularly on food where a lot of headline inflation is received here (in India)," Gokarn said, while speaking at an International Monetary Fund (IMF) event.
    
"High food inflation is locally driven, products that are driving it are not traded products. Even though it may not be linked to global commodity prices, there is a significant element of commodity shock there," he reasoned.
    
He pointed out that the inflation emanates from structural supply side issues like lack of proper warehousing or transportation which need time to correct.
     
Meanwhile, the IMF's president for Asia and Pacific Anoop Singh said the country will have to work on a lot of aspects like infrastructure to take the growth rate to the potential 9 percent from the 7 percent at present.
     
"The 12th five year plan spells out reforms that are needed in infrastructure, in power, in energy to take investment back to where it was a few years ago, and that is a major factor in taking the growth rate to its potential," he added.
      
The challenge, he said, is how to build the fiscal space to increase infrastructure and investment.
   
"Our projections for FY12 is 6.8 percent and 7 percent for FY13. To get to these numbers, you dont need a big rebound in investment," Singh's colleague in the IMF, Laura Papi, told
reporters.
   
"To go beyond that would require that investment comes back much stronger and this would depend on a lot of factors including the international backdrop but also what is going to happen domestically and to investment environment," she said.
   
Concerns have been raised in the recent past over what the captains of industry call as "policy paralysis" and high interest rates which has dented investments and hence brought down growth.
   
Even though the IMF officials avoided a direct comment on the policy front, Singh said he endorses RBI view that the capacity to bring down the key lending rate further is very less given the present conditions.
   
On growth, Gokarn stressed on the need for greater cooperation and trade between countries in the Asian continent which are experiencing high-growth and they mutually reduce their dependence on the developed world.

(Agencies)


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