India's farm output in 2009/10 will be higher than initial estimates, raising prospects that food inflation, which has soared in recent months, will soon be controlled, Prime Minister Manmohan Singh said on Saturday. Singh also said India was likely to grow at 7.5 percent for the fiscal year ending March, at a faster clip than the 6.7 percent economic expansion recorded for the previous year.
India's food price index rose an annual 17.56 percent in late January, just ahead of the central bank setting the stage for rate hikes by raising banks' cash reserve requirements more than what markets had been expecting. As persistently high food prices spill over into broader inflation and stoke public anger, government officials and the Reserve Bank of India (RBI) are walking a fine line between controlling prices and nurturing the recovering economy.
Singh told a conference of chief ministers of Indian states that provincial governments should improve data collection as gloomy forecasts after 2010 saw the worst monsoon in 37 years had raised inflationary expectations.
The government is expected to issue the latest crop estimates next week. In November, the government said the country's summer-sown rice output would fall 18 percent, while cane production would drop 9 percent - a forecast that raised the spectre of higher food prices and large imports of sugar and rice. "As expectations play a very big role in determining food prices, the initial low expectation, therefore, also contributed to the price increase," the prime minister said.
Prospects of large imports by India, the world's top sugar consumer, catapulted New York raw sugar futures to a 29-year high this week, although on Friday, fears over the global economy helped futures fall to a six-week low. Singh said the prospects of winter-sown crops were also bright, further improving the supply situation. "Post-monsoon rains have been good. All this augurs well for our ability to stabilise food prices at a reasonable level," he said.