Finance Minister P Chidambaram's adviser Shubhashis Gangopadhyay on Friday predicted that double digit inflation will continue throughout the year 2008 and could impact the economic growth negatively.
"There will be double digit inflation till December," Gangopadhyay told reporters in New Delhi after official figures showed inflation rising to a new 13-year high of 11.89 per cent for the week-ended June 28.
Pointing out that monetary steps taken by the RBI have helped contain inflation, yet "There will be negative impact on growth, but I don't think this will be severe," he said.
RBI has hiked short term lending rate, Repo, by 0.75 per cent last month in two phases and increased mandatory deposits of banks by 0.5 per cent in two phases.
Gangopadhyay added that on the food front, the situation has improved as the prices of many items have come down providing a relief to the poor sections of the society.
Referring to slowdown of industrial growth to 3.8 per cent in May from 10.6 per cent a year ago, Gangopadhyay said investment is likely to remain strong despite high interest rates.
With tighter monetary policy, all those who were planning to invest through debt would have to rethink.
However, he said, the cash rich corporate would continue to invest in long-term projects.
On oil prices, the Finance Minister's adviser said: "High oil prices are a serious concern. But oil subsidies must go." He favoured rationalisation of oil prices.
Considering high inflation at this stage, the oil prices could be rationalised at a later stage, but as a principle they must be linked to market rate, he said.
Asked about the possibility of bringing oil refineries under windfall tax, he said, the issue needed a large debate.