Speaking on inflation, he said, "There are a few areas where immediate engagement of the policy-makers is needed. In the short run, managing inflationary pressures, particularly food grain prices, is the biggest challenge." He also added that, "We also need to watch out what happens to crude prices in the global markets. We must remain committed to maintaining inflation at a low level."
Speaking on the high current account deficit which stood at 3.7 per cent of the GDP in the first half of 2010-11, he said, "Efforts must be made to bring down the current account deficit to a more manageable level of 2.0 to 2.5 per cent of GDP."
He added that fiscal consolidation is a necessary pre-requisite for sustained growth and the government should not hesitate from using any of the policies like-- interventions in the grain market, fiscal and monetary policies -- to bring down inflation further and re-anchor inflationary expectations to the 5 per cent comfort zone.
High rate of inflation has a negative impact on economic growth in the long run by leading to rise in interest rates. The increase in interest rate leads to rise in cost of production and fall in profits, thus leading to fall in output and GDP.
Few days back, global credit ratings agency Standard & Poor's had also warned India against high inflation stating that, "High inflation could derail India's stable macroeconomic and interest rate environment."