According to the minutes of the 23rd meeting of the bank's Technical Advisory Committee (TAC), headed by Governor D Subbarao, held on 19 January and released on Tuesday, rising food and energy prices could emerge as a major problem in 2011.
This is the first time RBI has made the minutes of the TAC, which was constituted in 2005, public. Even globally, central banks like the US Federal Reserve have a policy of releasing such materials after a time gap.
Besides inflationary pressure, the TAC also expressed concern about the growing current account deficit and slow down of Foreign Direct Investment (FDI) flows.
'Most of the members of the committee were of the view that the repo and reverse repo rates be raised by 25 basis points each,' the minutes said, adding that other means like increasing the statutory liquidity ratio (SLR) and increasing the cash reserve ratio (CRR) were also discussed as means of containing inflation.
Following the TAC meeting, the apex bank announced an increase of 25 basis points in the repo and reverse repo rates at its third quarterly review on 25 January.
However, RBI said that the role of the committee is advisory in nature.
'According to the committee, going forward inflation was a major risk to growth. As the current inflation was being driven by structural factors, there was a need to take necessary measures on supply side besides further monetary tightening,' the minutes said.
At the review, the RBI also revised its inflation estimate to 7 per cent by March-end from the earlier projection of 5.5 per cent.
'The committee...unanimously felt that it was imperative to contain inflation and anchor inflation expectations,' the minutes said.
Inflation has been above 8 per cent since February 2010, with the January numbers at 8.23 per cent.
Several members of the committee expressed concerns about the high and rising current account deficit. It felt that such a high level of current account deficit was not sustainable.
'The current account deficit was financed largely by portfolio and other short-term capital flows. They, therefore, also expressed concern over the slowdown in FDI flows,' the minutes said.
On Monday, Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan said he expects the current account deficit to be 3 per cent of GDP in 2010-11.
Besides, India's FDI during January-November 2010 declined by 26 per cent to USD 18.99 billion (Rs 86,921 crore) on account of fragile global economic recovery.
The shortfall is met through import, which is always a costly proposition. Again, the long-term supply could be a challenge going forward considering the increasing demand for coal from many emerging economies.
Sensing this, a clutch of Indian companies have started scouting for coal mines acquisitions abroad for their future needs. The list is endless and only likely to expand further in the coming days. Some have already succeeded as well.
Power generation through thermal power sector, which ICRA believes to continue to be the prime mover of coal demand in the country, has gone up to 90 Giga Watt (GW) at the end of November last year from 71 GW at the end of FY07. It is likely to increase further to 113 GW by FY12-end.
According to the Coal Ministry's estimates, the widening demand-supply gap of the fossil fuel is likely to touch 142 million tonnes next fiscal from projected 84 million tonnes in the current fiscal.