Mumbai: The apex bank on Tuesday forecast a volatile inflation scenario and a slowdown in the country’s economic growth if the monsoon rains are deficient this year.

Apex bank governor Raghuram Rajan described the monsoon as the single biggest factor being considered by the Reserve Bank of India (RBI) in forecasting the future growth trajectory of inflation and the country’s growth.

Answering a question at a press conference at the RBI headquarters at Mint Street here on the occasion of the bi-monthly monetary policy review, the governor said the foremost factor being looked at was the possibility of a deficient southwest monsoon. 

He went on to say that the central bank will keep an eye out on how the monsoon progresses and the steps taken by the government to mitigate its negative effects. 

“There have been El Nino in the past as well. Like the deficient rainfall in 2002-03, but the prices were stable and kept under control due to the government’s steps,” Rajan said.

The deficient monsoon will have an impact on the rural economy, food inflation, rural consumption, and production of food commodities such as oil seeds and pulses.

“But there are ways in which the government can step in like creating buffer stocks or imports of commodities such as pulses,” Rajan said.

The inflation level for January, 2016 has also been hiked to six percent from an earlier estimate of 5.8 percent.

Rajan said in his second bi-monthly monetary policy statement for 2015-16 that: “For the kharif season, the outlook is clouded by the first estimates of the India Meteorological Department (IMD), predicting that the southwest monsoon will be 7 percent below the long period average. This has been exacerbated by the confirmation of the onset of El Nino by the Australian Bureau of Meteorology.”

“What is clear is that contingency plans for food management, including storage of adequate quantity of seeds and fertilisers, crop insurance, credit facilities, timely release of food stocks, need to be in place to manage the impact of low production on inflation.”

Rajan added that inflation control will also be helped by limiting the increase in agricultural support prices.

Rajan’s assessment assumes significance as the guidance will have an impact on Corporate India’s rural strategies and game plan. Even the government might take cues to beef up food stocks, ship in more supplies of urea and other fertilisers and keep fuel prices in check.

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