- As you are aware, the global community is reeling under the impact of inflationary trends is visible with varying degrees of challenges. Some of the most advanced countries too are feeling the heat suggests how challenging the situation is right now. Back-to-back challenges in the form of the pandemic-induced economic devastation and the ongoing Russia-Ukraine war has posed unmitigated distress to the global community. Inflationary trends courtesy of rising commodity prices due to global supply disruptions have singed every economy in the world. Dishearteningly, there are no palpable signs of abating visible on this front despite the governments around the world leaving no stone unturned in addressing the issue.
PC: Ross Wilkers
- The Indian government has adroitly managed to stay afloat despite encountering several hurdles along the way, but we are entirely not out of the woods. Against this backdrop, data released over the last two days indicate that the Indian economy, while better off than most other major economies, is still in a tight spot. Retail inflation continued to inch up in September and growth in industrial output in August shrank. Separately, IMF’s forecasts estimated that India’s economic growth in 2022-23 will be 6.8% which represents a 1.4 percentage point reduction since the April forecast. The unfolding events call for deft economic management as it’s a situation where supply shocks are putting upward pressure on the price level while demand remains fragile.
- Note that Consumer Price Index for September was 7.4%, the ninth straight month where it overshot RBI’s upper threshold of tolerance of 6%. Within this dataset, the most worrisome aspect is pressure coming from food inflation. It was 8.6% in September, driven mainly by the 11.5% cereal inflation. This is thanks to a supply shock that came from an abnormal weather pattern during the harvest phases. As such, the Union Government’s decision to persist with free cereals for a while longer should act as a check on the upward pressure on the cereal price level. Further, domestic supply shocks pushing up food prices make RBI’s job more challenging as there are crosscurrents at play. Contraction in August’s industrial output is a concern.
PC: J3
- RBI has to grapple with rising food prices and the impact of currency depreciation on oil imports as well as the attendant pressure on domestic inflation. However, the central and states can mitigate matters through sensible fiscal measures. The phase of populist giveaways is over. In an uncertain scenario, financial markets can be unforgiving of fiscal slippages. There should be no cutbacks on budgeted capital expenditure. This is a growth driver, especially when the private sector will be wary of investing amidst such uncertainties. Thankfully, the Union Government has led the way with a 47% increase in capital expenditure in April-August to Rs 2.52 lakh crore. It’s imperative that states also must up their capex. Hopefully, these measures will be actioned.
