Amid El Nino, inflation concerns, Finance Ministry says strong consumer demand to spur growth

Finance


Even though a downward ‘adjustment’ in inflation may take longer to occur, especially if global commodity prices don’t return to pre-pandemic levels, India’s consumer demand remains strong despite inflationary pressures. File.
| Photo Credit: Reuters

Even though a downward ‘adjustment’ in inflation may take longer to occur, especially if global commodity prices don’t return to pre-pandemic levels, India’s consumer demand remains strong despite inflationary pressures and the revision in personal income tax slabs proposed in the Union Budget should boost consumption and spur growth, the Finance Ministry said on Thursday.

Citing high frequency indicators from December 2022 and January, the Ministry averred in its monthly economic review that the economy was on track to grow 7% in 2022-23, with overall demand conditions remaining conducive to supporting economic activity. 

On growth prospects for 2023-24, the Ministry cited the Economic Survey’s estimate of 6.5% growth “with more downside than upside risks” and stressed that the geopolitical environment remained “fraught”, which could spur more economic dislocation and supply chain disruptions. Predictions of El Nino conditions returning to India this year, if accurate, could lead to deficient monsoon rains, hit farm output and stir up prices, the Ministry cautioned.   

“The most recent consumer confidence survey for January… suggests a tentative recovery in consumer confidence as the survey assesses the prospects for prices and employment in the year ahead,” it pointed out, adding that inflation risks were likely to be lower in 2023-24 but would not have vanished.   

Asserting that the second half of 2022-23 had seen a “downward trend” in headline inflation due to measures taken by the government, the central bank and a downswing in global commodity prices, the Ministry acknowledged that the decline had been at “less than desired pace for some commodities”. 

With retail inflation resurging to 6.5% in January after two months below the 6% mark, the Ministry asserted that a decline in inflation often does not occur in a straight line “as prices are usually downward sticky”.   

“Indeed, the adjustment may prolong if global commodity prices do not gravitate to pre-pandemic levels. This could happen with consumption demand staying robust in the U.S., and reopening of the Chinese economy refuelling global demand,” it concluded. 



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *