The Economic Survey said on Tuesday that the RBI’s prediction that retail inflation will be 6.8% in the current fiscal year is neither too high to stop private consumption nor too low to make people less likely to invest.
But persistent inflation could make the tightening cycle last longer, which would mean that borrowing costs could stay “higher for longer.”
Nirmala Sitharaman, who is the Minister of Finance, put the Economic Survey 2022–2023 on the table in Parliament. The Survey talks about the current state of the economy and gives a sneak peek into the future.
India’s retail inflation went below 6% in November after being above RBI’s upper tolerance level for 10 months, starting in January 2022.
Last year, the central bank said that inflation would average 6.8% in the current fiscal year and then go down in the next fiscal year.
“RBI thinks that the overall rate of inflation will be 6.8% in FY23, which is above its target range.” “At the same time, it’s not high enough to stop people from spending their own money, and it’s not low enough to make people less likely to invest,” the Survey said.
The Reserve Bank’s job is to keep inflation at or below 4%, with a range of +/-2%.
Wholesale and retail price inflation in India stayed high for most of 2022. This was mostly because of problems with the supply chain caused by the Russia-Ukraine war that started in February 2022.
Russia and the Ukraine are two of the most important places where important agricultural goods like wheat, maize, sunflower seeds, and inputs like fertilisers are made. Together with other countries that border the Black Sea, they feed the world.
The Survey said that “entrenched inflation” could make the tightening cycle last longer, which could mean that borrowing costs will stay high for longer.
“In this case, the global economy may have slow growth in FY24,” the report said.
But in the case of slow global growth, there are two bright spots: low oil prices and better-than-expected CAD (Current Account Deficit).
“Overall, the outside situation will stay manageable,” the report said.
In December, retail or CPI inflation fell to its lowest level in a year, at 5.72 percent, while wholesale or WPI inflation fell to its lowest level in 22 months, at 4.95 percent.
