Business Standard

Summer sowing may ease inflation: Finmin

Says CAD needs to be watched in FY25


The finance ministry expects a broad-based moderation in inflationa­ry pressures on the back of an anticipate­d reduction in food prices as a result of the uptick in summer sowing. The retail inflation rate remained stubbornly clung to the 5 per cent mark in seven of the past eight months.

“Core inflation is trending downwards, indicating a broadbased moderation in price pressures... Driven by strong domestic growth and benign global commodity prices, core inflation is declining continuous­ly. Timely and multifront­al supply-side measures by the government have also helped the cause of price stability,” the finance ministry said in its monthly economic report for February. The report was released on Friday.

These comments from the finance ministry precede the Reserve Bank of India’s monetary policy committee (MPC) meeting, scheduled for April 3-5.

In February, high food prices kept the retail inflation rate at 5.09 per cent. A rise in the food inflation rate nullified the moderation in the core inflation rate, which excludes food and oil prices.

Earlier this week, the RBI’S State of the Economy report cautioned that the recurring incidence of shortampli­tude food price pressures is impeding a more rapid decline in headline inflation towards the 4 per cent target. It added that the monetary policy must remain in a riskminimi­sing mode.

The finance ministry report also highlighte­d that a narrowing merchandis­e trade deficit, coupled with rising net services receipts, is expected to improve the current account deficit (CAD). However, the CAD needs to be monitored in FY25.

The report noted that improving global investor confidence in India has started to reflect in foreign portfolio investment flows, but an increase in domestic household savings will be necessary to finance private sector capital formation in the economy. “The announceme­nt by Bloomberg that India would be included in its bond index from January 2025 should bolster inflows, buoyed by the fiscal prudence that the government has demonstrat­ed over the years. Bond investors will base their investment decisions on their perception of its persistenc­e. On the whole, India looks positively towards the dawn of FY25,” it further said.

The household savings rate had plummeted to a near fivedecade low of 5.1 per cent in 2022-23 from 11.5 per cent in 2020-21, raising concerns about rising household indebtedne­ss.

Despite headwinds like hardening crude oil prices and global supply chain bottleneck­s to trade, the report said India is looking forward to a bright outlook for FY25. It suggested that strong growth, stable inflation, a balanced external account, and a progressiv­e employment outlook would help the Indian economy close the current financial year on a positive note.

The monthly report noted that burgeoning air passenger traffic, increased sales of passenger vehicles, digital payments, and improved consumer confidence show that private consumptio­n demand has strengthen­ed. “India’s strong economic performanc­e, borne out by recent data releases, stands out amidst the sluggish global growth,” the report said.

It also noted that the increased demand for residentia­l properties in tier-2 and tier3 cities augurs well for furthering constructi­on activity.

On the employment front, the report highlighte­d the latest results of the Periodic Labour Force Survey, which indicated a decline in the unemployme­nt rate and an increase in labour force participat­ion in 2023.

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