Inflation turns positive after 13 weeks, presents policy dilemma to central bank

"Input prices in manufacturing have started picking up. Manufacturers will pass on this price rise once competition and demand improves. So clearly, there is an upside risk to inflation. It could be both from the demand as well as the supply side," Varma said.

Agrees Rajeev Malik, economist at Macquarie Group Ltd. in Singapore. "Poor monsoon rains complicates the policy setting" for the Reserve Bank of India (RBI), Malik said. "The downside risk to growth warrants pro-growth measures, while higher inflation argues for policy tightening."

According to Rahul Bajoria, an economist with Barclays Capital, a weaker-than-expected monsoon will add to the inflationary pressures that "will continue to build in India in the coming months."

"A pick up in inflation is a serious concern," said Sherman Chan, an economist at Moody's Economy.com in Sydney. "The authorities are keen to make pre-emptive moves in containing inflation, though we expect the Reserve Bank to only tighten policy when growth returns above 7 percent."

According to D.K. Joshi, principal economist at CRISIL, the present inflation rate should not cause any concern to policy makers but it will give them sleepless nights in the last quarter of the present fiscal. "WPI has moved to positive zone quite quickly. Food inflation is not something which can be controlled by the RBI," Joshi said, adding that RB can do very little about price pressures caused by supply-side bottlenecks.

"What it (the data) is showing is that the pace of increase in prices is gathering momentum. Till now it is essentially food items and not too much implications for monetary policy. However, in coming weeks it is continuously going to inch upwards and by March-end it will definitely cross 6 percent. RBI will tighten only after there is a decisive upturn in the economy," he said.