Inflation worsens even after Russia-Ukraine war in late February 2022 India Due to limited supply, the Reserve Bank of India (RBI) put First inflation then growth, However, in December 2022, retail inflation decreased Data released by the Ministry of Statistics and Program Implementation (MoSPI) on January 23 showed that the RBI’s comfort range of 2 per cent-6 per cent remained within the one-year low of 5.72 per cent for a second month. RBI Governor Shaktikanta Das even said last week that “inflation had begun Softand “the current account deficit looked manageable”.
So is it time for the RBI to focus on growth?
Network18 Group Editor-in-Chief Rahul Joshi spoke to the Union Finance Minister Nirmala Sitharaman Notably, two days after she presented the Budget on February 1, she said while she would not like to guide the RBI, broadly, “the pressure on the central bank has come down”.
When asked whether the RBI could consider more relaxed monitoring, tightening and supporting growth in the coming months, Sitharaman said, “Broadly, the way the RBI and the government work through Inflation has come down since… Government action has been steady and [the government] Been at it for a while. The fall in inflation does not appear to be a transient or one-month phenomenon. It must sustain itself in the process of coming down. There should not be so much pressure on the central bank to keep up the pace of raising rates. But the Monetary Policy Committee (MPC) will decide.
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inflation and growth
Explaining why it prioritized inflation over growth, Das in May 2022 said that before the Russia-Ukraine war, the RBI’s primary goal was to focus on growth and tolerate inflation up to 6 per cent. “Intermittently, during this period, inflation has skyrocketed 6 percent and above; On one or two occasions it even reached 7 per cent…”
India’s retail inflation rose to a five-month high of 7.41 per cent in September. This was the ninth month that consumer price index (CPI)-based inflation had remained above the RBI’s upper tolerance limit of 6 per cent, rising despite the central bank’s efforts to contain it. Retail inflation was 7.04 per cent in May, 7.01 per cent in June, 6.71 per cent in July, 7 per cent in August and now 7.41 per cent in September.
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retail inflation In December 2022, it fell to a one-year low of 5.72 per cent mainly due to softening food prices.
In December, the rate-setting panel of the RBI revised its forecast for real gross domestic product (GDP) growth to 6.8 per cent. Das had said, “Even after this revision in our growth projections, India will still remain one of the fastest growing major economies.” World However, the bank revised India’s GDP growth forecast for the fiscal to 6.9 per cent from 6.5 per cent estimated earlier due to strong economic activities in the country. According to the World Bank’s latest India Development Update, retail inflation was expected to remain at 7.1 per cent in 2022-23.
‘Stable’: The banking system and the double deficit
According to the Finance Minister, the overall banking system is also stable now. “Both the RBI and the Financial Stability Board (FSB), which meets once in six months, are aware that the Indian banking system, reeling under the twin balance sheet problem, is at a comfortable level… their non-performing assets (NPAs) ) are coming at a very low level, recovery is happening, their position is very strong. This shows that when they go to the market to raise money, they are completely comfortable… The entire macroeconomic analysis, which any expert will do, will show how comfortable the banks are…,” Finance Minister he said.
The ‘twin balance sheet problem’ is a situation in which corporations are highly leveraged on the one hand, and banks are saddled with bad loans on the other.
“The twin deficits are not as severe as before. When exports come down, you are going to have a current account deficit… It is also increasing. Imports also go up and down. Monthly fluctuations should not worry us. If there is a consistent decline every month, but no signs of an uptrend, then we should worry. Monthly volatility should not worry us,” he said.
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The problem of twin deficit occurs when both fiscal and current account deficits increase simultaneously. Fiscal deficit occurs when expenditure exceeds income.
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