‘Excise duty cut on petrol and diesel is significantly positive for inflation’

Reserve Bank of India Governor Shaktikanta Das on Wednesday said the excise duty cut on petrol and diesel is significantly positive for inflation.

Further, with growth impulses becoming stronger, he expressed confidence that the economy is on the path to reaching the 9.5 per cent GDP growth projection for FY22.

“The excise duty cut is significantly positive for inflation. In India, the inflation originated from food inflation – edible oil, pulses, etc – and then petrol and diesel prices had their impact on various segments of the entire inflation basket. And most of it was caused due to supply-side factors. So, supply-side factors have been addressed by the government, particularly with reference to pulses and edible oil, and now, very recently, with reference to petrol and diesel. So, all these have augured well for the inflation scenario,” said Das in an interaction organised by a financial daily.

Inflation uncertainty

The Governor observed that food inflation, by and large, looks to be stable and under control now. But he cautioned that food inflation always has uncertainty built around unseasonal rains and unexpected weather events.

“So far as India is concerned, core inflation has remained elevated. And that is a policy challenge and we are keeping a close watch over its evolution. And fuel inflation has also remained elevated,” Das said.

Hence, RBI is very watchful with regard to core, fuel and food inflation.

To a question on the earlier position of central bankers on “inflation being only transitory” undergoing a change, Das said: “….their language is becoming more and more nuanced. So, we have to wait and watch the evolving situation. Energy prices have suddenly gone up. Nobody expected a sudden shortage of energy or prices going up. Similarly, steel, commodity and crude oil prices have gone up.”

The Governor noted that some experts/analysts say that steel, commodity and crude oil prices seem to have peaked. But then these are markets in which it is very difficult to project whether they have peaked.

“So, globally, therefore, inflation has to be very carefully watched for countries like India. So far as our domestic inflation scenario is concerned, whatever projection we gave (of 5.3 per cent for FY22) in the last monetary policy committee meeting, our expectation, even at this point, is that it will be in line with our projection,” he said.

Das emphasised that positive developments emanating from the petrol and diesel prices reduction, which incidentally RBI had not factored in in its 5.3 per cent projection, is a positive development.

Growth impulses stronger

Das said growth impulses have become stronger, with fast-moving indicators looking very positive. “And our assessment…is we are on the path of reaching the 9.5 per cent GDP growth projection. This seems to be quite achievable at this point,” he added.

But then the Governor also cautioned that global headwinds are originating from the external sector. For example, the growth in the advanced economies, which was very positive up to the second quarter of this calendar year, seems to have moderated in the third quarter.

“IMF’s global growth projection of 5.9 per cent may or may not be achieved. I think, there is a possibility that global growth may undershoot this target, mainly because of factors like shortage of semi-conductors, shipping facilities, containers, and higher freight costs and container charges. Input costs have gone up, commodity prices have gone up,” he said.

“And Covid remains quite high in many Asian countries as well as in many European countries. So, therefore, global headwinds are very much there as far as India is concerned. But India’s growth impulses are strong and 9.5 per cent GDP growth for the current year should be achieved as it looks today,” Das said.

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