Global Policy tightening may precipitate rocketing inflation
- Food and beverages inflation was the main driver, rising to 7.5 per cent in March from 5.9 percent in February - the RBI report.
The Reserve Bank of India (RBI) is cautioning on the ‘grim’ near-term global outlook.
- The surge in commodity prices is already posing inflation risks.
- It is especially through the conduit of surging imports.
- Retail inflation has gone up to 6.95 percent in March.
State of the Economy Report
Rapidly widening trade and current account deficits co-existing with portfolio capital outflows weigh on external sustainability.
- The strength of underlying fundamentals and the stock of international reserves provide buffers.
- India too is experiencing tremors from these (global) developments.
- The fallout of the war and retaliatory sanctions is already evident in inflation prints and balance of payments developments.
- Emerging market economies are embracing risk sentiments and tightening of global financial conditions that could produce real economic consequences.
- It may thwart incipient recoveries or even precipitate rocketing inflation and economic downturns.
- The Indian economy is not immune to these negative externalities.
Steps by the RBI
- The RBI kept the repo rate unchanged in the April policy review and initiated the process of normalization of the accommodative policy.
Things in India’s favor
The near-term global outlook appears grim, caught up in a vortex of geo-political risks materializing rapidly, strained supply chains and the quickening pace of monetary policy normalization.
- India faces these challenges from a position of strength built on:
- Broadened vaccine coverage,
- Financial sector resilience,
- Robust export and remittances
- Fiscal reprioritization to spur capital spending on infrastructure.
- Going forward, spurring private investment remains a key thrust area for sustaining growth on a durable basis.
India enters Samvat 2079, the third wave seems to be behind and, with the removal of all curbs, alongside a broadening of vaccination, economic activity is returning to speed.
- Most sectors are reaching or have exceeded pre-pandemic levels.
- Bank credit has gathered pace and the job market is gathering steam.
- Retail Inflation
- State of the Economy Report
- Trade and Current account deficit
Q. India’s policies to withstand short term and long term turmoil due to Global events have proven to be more effective than other countries. Analyse.