‘Rains to co ol prices, PLIs to trim trade gap’
NEW DELHI: The forecast of above-normal monsoon rains in 2024 indicates a good harvest, potentially easing inflationary concerns in the coming months, the finance ministry’s latest monthly economic review said.
However, despite global inflation remaining either in check or declining in most regions, the recent uptick across nations, along with persistent core inflation, warrants attention, the ministry’s March review released on Thursday said.
“In India, the government and RBI’s (Reserve Bank of India’s) efforts to combat inflation, including calibrated policy rates, strengthening food buffers, and easing imports, have ensured effective inflation management,” the review said. “Consequently, retail inflation in 2023-24 witnessed a significant decline, reaching its lowest level since the Covid-19 pandemic, with core inflation dropping to 3.3% in March 2024,” it added.
Core inflation strips out the prices of food and energy that tend to be volatile.
Last week, the India Meteorological Department (IMD) forecast the June-September southwest monsoon to be above normal—at 106% of the long-period or 50-year average of 87 cm of rainfall. The upbeat prediction has bolstered hopes of a growth revival in the farm sector that was hit by erratic rainfall last year.
“Further easing of food prices is on the anvil as IMD has predicted above-normal rainfall during the monsoon season, which is likely to lead to higher production, assuming good spatial and temporal distribution of the rainfall,” the ministry said.
India’s food inflation, accounting for nearly half the overall consumer price basket, eased marginally to 8.52% in March, from 8.66% in February, as prices of meat, fish, eggs and vegetables remained elevated.
Food inflation stood at 8.30% in January and 9.53% in December.
Meanwhile, retail inflation, as measured by the Consumer Price Index, fell to a 10-month low of 4.85% in March, slipping below the 5% mark for the first time since November 2023, but still remaining above the central bank’s target of 4%.
The finance ministry expects the trade deficit to decline in the coming years on the back of the production-linked incentive (PLI) scheme, whose coverage will be deepened and extended to newer sectors. The PLI scheme currently targets 14 sectors such as telecom, electronics, automobiles and pharmaceuticals. India’s overall deficit in merchandise trade is estimated at $240 billion in 2023-24, down from $265 billion a year ago.
“Driven by strong exports and resilient remittances, various international agencies and RBI expect the CAD (current account deficit) to GDP (gross domestic product) ratio to have moderated below 1% in 2023-24,” the finance ministry said in the review.
“Additionally, strategic trade agreements like the India-EFTA Trade and Economic Partnership Agreement (TEPA) signal India’s commitment to expanding its global trade footprint and leveraging international partnerships for sustained economic growth,” it added.