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Journalism of Courage
Cautioning on the ‘grim’ near-term global outlook, the Reserve Bank of India (RBI) on Monday said the surge in commodity prices is already posing inflation risks, especially through the conduit of surging imports.
“Rapidly widening trade and current account deficits co-existing with portfolio capital outflows weigh on external sustainability, although the strength of underlying fundamentals and the stock of international reserves provide buffers,” the RBI said in its ‘State of the economy’ report. Retail inflation has gone up to 6.95 per cent in March.
Food and beverages inflation was the main driver, rising to 7.5 per cent in March from 5.9 per cent in February, the
RBI report said. “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,” the RBI report said. While the RBI kept the repo rate unchanged in the April policy review, it has initiated the process of normalisation of the accommodative policy.
According to the RBI, the near-term global outlook appears grim, caught up in a vortex of geo-political risks materialising rapidly, strained supply chains and the quickening pace of monetary policy normalisation. “Emerging market economies are bracing up to contend with swift shifts in risk sentiments and tightening of global financial conditions that could produce real economy consequences which may thwart incipient recoveries or even precipitate rocketing inflation and economic downturns,” it said.
“The Indian economy is not immune to these negative externalities,” the report said.
India faces these challenges from a position of strength built on broadened vaccine coverage, financial sector resilience, robust export and remittances and fiscal reprioritisation to spur capital spending on infrastructure, it said. “Going forward, spurring private investment remains a key thrust area for sustaining growth on a durable basis,” the report said.
As 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, it said. “Most sectors are reaching or have exceeded pre-pandemic levels. Bank credit has gathered pace and the job market is gathering steam…”
