A Finance Ministry report has projected that inflation will remain elevated in coming months. It has also called for macroeconomic stability to mitigate geo political challenges.

“While domestic consumption and investment demand are expected to continue driving growth, global uncertainty and domestic disruptions may keep inflationary pressures elevated for the coming months, warranting greater vigilance by government and the RBI,” Monthly Economic Review (MER), prepared by Economic Affairs Department said. The report was released on Tuesday.

This statement has come at a time when food prices continue to rule high, despite reduction in the prices of tomatoes. While onion prices are already high, pulses, too, are adding to the inflation pressure.

There has been a rise in the prices of crude due to cut in production as well as exports by oil producing countries.

Retail inflation based on Consumer Price Index (CPI) surged to 14-month high of 7.4 per cent in July. Most of the economists estimate retail inflation between 6.5 to 7.2 per cent in August.

Meanwhile, government has imposed export duty on onion and lowered import duty on some pulses. On June 2, the government imposed stock limits on tur and urad till October 31 under the Essential Commodities Act, 1955.

To further prevent hoarding and speculation, the Centre imposed stock limits on Wheat from June 12 to March 31, next year.

MER expects that the above mentioned measures will ease prices. “The government has already taken pre-emptive measures to restrain food inflation which, along with the arrival of fresh stock, is likely to subside price pressure in the market soon,” the report said.

The report said that the external sector requires monitoring for further strengthening the prospects in the face of active pursuit of industrial policies globally. Services exports continue to do well and are likely to continue doing so as the preference for remote working remains unabated, typically manifested in the proliferation of global capability centres.

Food inflation is likely to be a cause for concern for a little longer: Dipti Deshpande  Food inflation is likely to be a cause for concern for a little longer: Dipti Deshpande  

From a medium term perspective, it is important to monitor the impact of new technologies, such as artificial intelligence, on the external demand for Indian services exports and the consequent impact on employment. “Downside risks to global stock markets on account of rising bond yields and anticipation of further monetary tightening do affect stock markets in emerging economies. Maintenance of macroeconomic stability may be returning as an important policy objective after about a year of relative abatement of macroeconomic headwinds,” it said.

The report added that it is paramount to keep interest rates from rising too much to underscore the relative attractiveness of India as a zone of performance and promise for domestic and international investors and to maintain steady economic growth.

“In the given circumstances, policies that contribute to the maintenance of macroeconomic stability constitute macroeconomic stimulus,” it concluded.

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