- There seems to be no respite for the common citizens going by the incessant hardships being encountered by them over the last two years. Sustaining livelihood as well as saving lives on the back of the pandemic has been anything but challenging for everybody concerned. Since the much-feared Omicron variant has considerably ebbed all over the country in the past few weeks, fervent hopes of bullishly reviving the economy have received a setback in the form of an untimely Russian invasion of Ukraine. The cascading effects of the invasion are already playing out in several economies and India is no exception as the anticipated challenges in multitude are already upon us.
PC: WDTV News Staff
- The uneven consumption pattern witnessed so far has really not helped the situation one bit either. In a worrying sign, two data points released this week provide insightful information on the economic challenges India faces owing to evolving circumstances beyond one’s control. Note that the retail inflation, measured by Consumer Price Index (CPI), was 6.07% in February. For the second straight month, it was higher than the upper tolerance band of 6%, which guides monetary policy decisions of the Reserve Bank of India and the Union Finance Ministry. Of greater significance is the uptick in sequential momentum of inflation between January and February.
- As mentioned above, global geopolitical events in February have upended inflation forecasts and the next RBI monetary policy meeting scheduled in April will reflect the evolving scenario for sure. As you are aware, the country’s energy requirements are largely dependent on imports in the form of crude brent. The key component in the changing landscape is witnessing a price escalation as crude has settled above $100 a barrel over the last few days much to the consternation of the Indian think tank. As pump prices have been sticky for a while owing to the crucial assembly elections to the five states, there is an expectation of increases to align crude oil cost to the retail price.
PC:
- Both the central and state governments are acutely aware of the ensuing hardships on the back of fuel price rise. Nonetheless, any decision on it needs to be located in the larger economic context of weak aggregate demand. To elaborate, Index of Industrial Production data for January showed that consumer durable and capital goods production contracted for the fourth successive month. It’s not an Omicron-driven blip but a manifestation of weak demand bogging the economy. Expect a realignment of priorities by the RBI because of financial turbulence since it has pushed down interest rates for over two years to support economic growth.
- Buoyance in foreign currency reserve allows us to deal with potential turbulence leaving fiscal policy with the task of dealing with weak demand. Mind you, elevated inflation will show up in higher overall tax collections. Thus, lowering central fuel taxes to ring-fence the economy from a demand shock when crude oil prices feed into different retail prices assumes paramount importance. States too chipping in by reducing taxes to complement the central government’s efforts will further cushion the consumers from extreme sufferings.
