Inflation at 6.8% not too high to deter private consumption, investment: Survey

The RBI’s forecast for retail inflation of 6.8 percent in the current fiscal year is neither too high to deter private consumption, nor too low to dampen the incentive to invest, the economic survey said on Tuesday.

However, entrenched inflation may prolong the tightening cycle, and thus, borrowing costs may “remain high for longer,” she said.

The Economic Study 2022-23 has been tabled in Parliament by Finance Minister Nirmala Sitharaman. The survey details the current fiscal state of the economy, while giving a peek into the future.

endurance level

India’s retail inflation fell below 6 per cent in November after remaining above the RBI’s upper tolerance level for 10 months since January 2022.

The Central Bank expected last year that the inflation rate would reach 6.8 percent in the current budget, before it declines in the next fiscal year.

“The Reserve Bank of India expected headline inflation to reach 6.8 percent in FY23, which is outside the target range. At the same time, it is not high enough to deter private consumption, nor is it low enough to dampen the incentive to invest,” the survey said. .

The Reserve Bank has a mandate to keep the inflation rate at 4 per cent with a range of (+/-) 2 per cent.

Wholesale and retail price inflation in India remained elevated for most part of 2022 mainly due to supply chain disruptions following the outbreak of the Russo-Ukraine War at the beginning of February 2022.

Russia and Ukraine are among the most important producers of agricultural staples, including wheat, corn, sunflower seeds, and inputs such as fertilizer. Together with other countries bordering the Black Sea, they constitute the world’s food basket.

global growth

The survey said “entrenched inflation” could prolong the tightening cycle and so borrowing costs could remain higher for longer.

“In such a scenario, the global economy may be characterized by low growth in FY24,” she said.

However, the weak global growth scenario presents two silver linings – lower oil prices and a better than expected Canadian dollar (current account deficit).

“The general external situation will remain under control,” she added.

Retail inflation, or the consumer price index, fell to a one-year low of 5.72 percent in December, while wholesale inflation, or the consumer price index, hit a 22-month low of 4.95 percent.