New Delhi: Union finance minister Nirmala Sitharaman on Tuesday tabled the economic survey 2022-23 in Parliament. The economic survey projected the country’s economy to grow 6.5 per cent in 2023-24, compared to 7 per cent this fiscal.
6.8 pc inflation not too high to deter private consumption, or weaken inducement to invest
RBI’s projection of retail inflation at 6.8 per cent in the current fiscal is neither too high to deter private consumption, nor so low as to weaken inducement to invest, the Economic Survey said.
However, entrenched inflation may prolong the tightening cycle and therefore, borrowing costs may stay ‘higher for longer’, it said.
India’s retail inflation came down below 6 per cent in November after remaining above RBI’s upper tolerance level for 10 months since January 2022.
The central bank last year projected inflation to average 6.8 per cent in the current fiscal, before declining in the next fiscal.
“RBI has projected headline inflation at 6.8 per cent in FY23, which is outside its target range. At the same time it is not high enough to deter private consumption and also not so low as to weaken the inducement to invest,” the Survey said.
The Reserve Bank has the mandate to keep inflation at 4 per cent with a band of (+/-) 2 per cent.
India’s wholesale and retail price inflation remained high for most part of 2022 mainly due to supply chain disruptions following outbreak of the Russia-Ukraine war beginning February, 2022.
Russia and Ukraine are among the most important producers of essential agricultural commodities, including wheat, maize, sunflower seeds and inputs like fertilisers. Together with other countries bordering the Black Sea, they constitute the world’s breadbasket.
The Survey said that ‘entrenched inflation’ may prolong the tightening cycle and therefore borrowing costs may stay higher for longer.
“In such a scenario, global economy may be characterised by low growth in FY24,” it said.
However, the scenario of subdued global growth presents two silver linings — low oil prices and better than projected CAD (Current Account Deficit).
“Overall external situation will remain manageable,” it added.
Retail or CPI inflation fell to a year low level of 5.72 per cent in December, while wholesale or WPI inflation was at 22-month low of 4.95 per cent.
Need to closely monitor CAD
The Economic Survey underlined the need for close monitoring of the current account deficit which may continue to widen because of elevated global commodity prices.
The country’s current account deficit widened to 4.4 per cent of the GDP in the quarter ending September, from 2.2 per cent of the GDP during the April-June period due to a higher trade gap, according to the latest Reserve Bank data.
“…a downside risk to the current account balance stems from a swift recovery driven mainly by domestic demand, and to a lesser extent, by exports,” the Survey said, adding “CAD needs to be closely monitored as the growth momentum of the current year spills over into the next”.
The rate of growth in imports has been faster compared to that of exports in 2022-23 so far, leading to the widening of the trade deficit.
Sounding a note of caution, the key government document said the challenge of the depreciating rupee, although better performing than most other currencies, persists with the likelihood of further increases in policy rates by the US Federal Reserve.
“The widening of CAD may also continue as global commodity prices remain elevated and the growth momentum of the Indian economy remains strong. The loss of export stimulus is further possible as the slowing world growth and trade shrinks the global market size in the second half of the current year,” the Survey said.
On the other hand, the Survey said the subdued global growth presents “two silver linings” — crude oil prices will stay low, and India’s CAD will be better than currently presented.
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