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No room for complacency on the inflation front: Finance Ministry

Editorial Board by Editorial Board
September 17, 2022
in Finance News
Reading Time: 5 mins read
0


BENGALURU: There is no room for complacency on inflation, the finance ministry warned in the August Monthly Economic Review, even as it noted that inflationary pressures in India appear to be easing. He said the lower sowing for the kharif season requires “correct management” of stocks of agricultural commodities and market prices.

He said India’s growth has been robust and inflation under control, but “downside risks to growth will persist to the extent that India is integrated with the rest of the world.”

He added that inflationary pressures in India appear to be easing with a set of preventive administrative measures by the government, accommodative monetary policy and a reduction in international commodity prices and supply chain bottlenecks . India is in a better position to calibrate its liquidity levels without sharply slowing growth, he said.

India, Asia’s third-largest economy, recently overtook the United Kingdom to become the world’s fifth-largest ((based on quarterly GDP results in current dollars for the period ending December 2021).India is also the fastest growing major economy to date, estimated to grow by 7.2% in the current fiscal.

In the next three quarters of the current year, India’s real GDP needs to “grow (only) 5.4%” on average each quarter to reach the 7.2% growth rate in 2022- 23 as provided by the RBI.

“While persistently high liquidity may partly explain inflation’s stubbornness in advanced economies, inflation in India, a net commodity importer, has been a by-product of exogenous pressures located abroad” , the report said.

He added that the increase in international prices was reflected in an increase in domestic prices, although the increase in domestic prices was relatively modest due to timely government interventions. Also, as these external pressures ease, inflationary pressures in India are also likely to ease, he added.

India’s retail inflation, as measured by the consumer price index, returned to 7% in August after falling to a five-month low in July. However, wholesale inflation eased to an 11-month low of 12.41% in August as non-food and fuel inflation showed signs of easing.

With “bright” growth prospects, India’s imports are growing at a faster pace and hence, financing them comfortably will have to be given high priority, the report said. “In the winter months, the international emphasis on energy security in advanced countries could increase geopolitical tensions. testing India’s shrewd management of its energy needs so far,” he said.

“In these uncertain times, complacency and sitting back for long periods may not be possible. Eternal macroeconomic vigilance is the price of stability and sustained growth,” the report added.

The contact-intensive services sector is likely to drive growth in 2022-23 based on the cumulative demand posted after the absence of a pandemic wave in the first quarter and near-universal vaccination to date, according to the report

The increase in private consumption may also be a reflection of the increasing effectiveness of income support and targeted subsidies provided by the government, job creation from high levels of public sector capex, and the general increase of employment levels, he added.

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