RBI should target core inflation at 3 per cent: Pronab Sen

NEW DELHI: Pronab Sen, the newly appointed chairman of the Standing Committee on Statistics, has said core inflation target of 3% with an upper tolerance level of 4% and lower limit of 2% should be part of the Reserve Bank of India’s (RBI) mandate, along with the headline retail inflation.

Core inflation, excluding telecom tariffs, has entered deflationary territory, which is acause for worry, Sen, who is also India’s former chief statistician, told ET.

Retail inflation rose to its highest level in more than five years in December to 7.35% following a spike in food prices, with core inflation, a measure of demand inflation, being 3.7% in December. “I’m not worried on the inflation front but more on the nature of the response. A small uptick in telecom has led to higher core inflation. Actually, there are parts of core which are staring at deflation, not inflation,” Sen said, adding that the RBI should be looking at core.

On the inflation target band, he said, “The band for headline inflation is alright but incomplete without one for core inflation,” and favoured an additional target of core should be provided.

Referring to a report by the Comptroller and Auditor General (CAG), which pegged India’s fiscal deficit for 2017-18 at 5.85% against the government’s reported figure of 3.46%, he said, “3.4-3.5% fiscal deficit figure is fiction. Till the time we have the real deficit number, we can’t talk of the slippage. I think it is 4.2-4.4%.”

With growth expected to expand nominally to 7.5% this year, which is lower than the budget estimate of 11%, there is pressure that the fiscal deficit will breach its target of 3.3%.

Sen also said that the timing for tax cuts is not right, and that monetisation of assets like highways is “doable”. “Personal income tax cuts would be good if you had fiscal space. The government should raise expenditure because that would give it bigger bang for the buck.

“This is not the time for tax cuts,” Sen said, adding that there is urgency to bring money out in the system.