‘Global cues, energy prices to determine inflation in India’
NEW DELHI: Global factors like energy prices will determine course of inflation in India, the finance ministry said in its latest monthly economic review report, even as the government expects it to decline in FY23,
The report also said the monetary policy committee’s (MPC) decision to keep interest rates unchanged in its latest policy meet, prioritizes growth during uncertain times and reinforces the investment orientation of the budget.
“Global inflation and energy prices are likely to be influential in determining India’s rate of inflation and the government expects it to decline to eventually obtain a GDP deflator of 3.0-3.5% assumed in the Budget 2022-13,” the said the report. The Union budget estimated a nominal GDP growth of 11.1% for FY23 which translates into a real GDP growth rate of 7.6-8.1%. GDP deflator, a measure of inflation, is the difference between nominal and real GDP. “Should retail inflation remain range-bound at 4.5% as projected by the MPC in 2022-23, liquidity levels in the economy will remain high and interface with low interest rates to provide easier financing options to industry and individuals,” the report added.
The US Federal Reserve is expected to hike interest rates with the world’s largest economy experiencing inflation at a near- four-decade high. Oil prices have hit $94 per barrel over the Russia-Ukraine conflict.
In India, CPI inflation accelerated to a 7-month high in January, breaching the Reserve Bank of India’s tolerance bank of 6%. The report pointed that going forward, easing vegetable prices on account of fresh winter crops and better prospects for foodgrain production contribute to an optimistic view of inflation.
“However, given that the categories bearing the brunt of imported inflation are edible oils and crude oil, it will be important to monitor the multi-round effects such imported inflation may have on the value chain, as also the transmission of input cost pressures to final selling prices, which is currently weak as is evident from the large gap between WPI and CPI inflation,” said the report. The February MPC meeting retained the inflation projection at 5.3% for 2021-22 and 4.5% for 2022-23.
The finance ministry noted that the current year may as well end with an economic reset of a post-Covid world: private consumption will grow cautiously as precautionary demand for money rises at every hint of a new infection. “Private investment, helped by the complementary support of public investment in infrastructure, will continue to gain traction,” said the report. Rising consumption levels due to jobs created by government spending will induce private investment, it said.
As the Budget allocated 24.51% less to the MGNREGS, the report pointed out that an additional security for the rural work-force will always be in a ready state of deployment.