India’s inflation trajectory in the next few months will be influenced more by the Russia-Ukraine conflict and its impact on supply chains and commodity prices, the Finance Ministry said in its latest monthly economic report. However, the country is better placed than most to ‘weather the storm’ and achieve growth of close to 8 percent in the current fiscal.
“Through the channel of imports, elevated global crude and edible oil prices now have a significant impact on India’s inflation outlook. Government measures to keep the prices of these commodities in check, along with the recent hike in policy rates by the RBI, are expected to temper inflationary pressures in the economy,” the report for April said.
Notwithstanding the presence of inflationary headwinds, the capex-driven fiscal path of the government, as laid down in the budget, will help the economy post a near 8 percent growth in real GDP for the current year, it said.
Seen over a longer time horizon, inflation in India’s economy has not been as much a challenge as is sensed from month-to-month changes. It said while consumer price inflation is expected to be elevated in 2022-23, mitigating action taken by the Central Government and the Reserve Bank of India may reduce its duration.
“Evidence on consumption patterns further suggests that inflation in India has a lesser impact on low-income strata than on high-income groups. Further, since aggregate demand is recovering only gradually, the risk of sustained high inflation is low,” said the report.
CPI inflation for April surged to 7.79 percent, largely driven by rising fuel and food prices and staying well above the RBI’s upper tolerance limit for the fourth consecutive month.
The report said notwithstanding the turbulence associated with monetary tightening in advanced economies, the ongoing geopolitical conflict, lockdowns in parts of China and the supply-side disruptions that are likely in their wake, India is relatively better placed than most other nations to weather the storm and achieve steady growth during the current fiscal.
“Rising food and energy prices are a global phenomenon and even several advanced nations have higher inflation rates than India. The RBI has signaled its determination to combat inflation and that too will sustain macroeconomic stability and growth,” it said.
