Inflationary pressures in India appear to be on a decline, says finance ministry report – Times of India

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NEW DELHI: Overall, inflationary pressures in India appear to be on a decline with a pre-emptive set of administrative measures by the government, agile monetary policy and easing of international commodity prices and supply-chain bottlenecks, a finance ministry report said on Saturday.

“In times when slowing growth and high inflation are afflicting most of the major economies of the world, India’s growth has been robust and inflation in control,” according to the finance ministry’s monthly economic report for August.

It said as external pressures ease inflationary pressures in India are also likely to subside and pointed to several indicators that have indicated a moderating trend. Industrial metals and edible oil prices, after peaking in March 2022, have softened, led by recessionary fears in advanced economies. Crude prices have dropped 19.1 per cent by August since the peak in the month of June 2022. Supply chains are getting restored with decline in port congestion. The report said the impact is already reflected in the decline in CPI-C and WPI inflation since April 2022. CPI inflation was at 7 per cent in August 2022 compared to 7.8 per cent in April 2022 and WPI Inflation has slowed from 15.4 per cent in April to 12.4 per cent in August.

Latest data showed that retail inflation accelerated in August on the back of high food prices, reversing a two-month downward trend and remained above the Reserve Bank of India’s (

RBI

) upper tolerance level of 6 per cent for the eighth consecutive month, which may prompt the central bank to raise interest rates again.

The report said that downside risks to growth will persist as India is integrated with the rest of the world and called for strict vigil on prices.

“Nor is there room for complacency on the inflation front as lower crops-sowing for the Kharif season calls for deft management of stocks of agricultural commodities and market prices without unduly jeopardising farm exports,” according to the report.

The report added that for all the hawkish central bank rhetoric, the balance sheet of the US Federal Reserve has yet to begin contracting. It is expanding more slowly and when it actually starts shrinking, it may herald a new phase of risk aversion in capital markets, impeding global capital flows.

It said India’s imports are growing faster and, therefore, financing them comfortably will have to be accorded high priority. In winter months, heightened international focus on energy security in advanced nations could elevate geopolitical tensions, testing India’s astute handling of its energy needs so far.

“In these uncertain times, it may not be possible to remain satisfied and sit back for long periods. Eternal macroeconomic vigilance is the price for stability and sustained growth,” according to the report.

Notwithstanding the challenges, the report said India has a lot going for it, especially compared to other nations because its government chose not to pay heed to expert advice for untrammelled fiscal and monetary expansion during the pandemic years of 2020 and 2021.

“Watchful and prudent fiscal management and credible monetary policy will remain essential for India to fulfil its growth aspirations. Both these pillars of public policy will enable benchmark borrowing costs for the government and the private sector to decline, facilitating public and private sector capital formation,” said the report.

It called for vigorous pursuit of asset monetisation at all levels of government that will help lower debt stock and debt servicing costs. “That would cause risk premium to drop and credit rating of India to improve. A virtuous circle would set in as the quality of public expenditure increases in its wake and the private sector enjoys a lower cost of capital,” according to the report.

“The current financial year thus has the potential to lay a strong foundation for sustained economic growth, improved resilience and enhanced competitiveness of ‘Make in India’ during the Amrit Kaal,” said the report.

Satheendhar Sahani

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