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Can Inflation Impede Budding Economic Recovery?

Driven by a hike in rural unemployment which increased to 7.91 per cent in October from 6.06 per cent in September. Hence, overall unemployment rose to 7.75 per cent from 6.86 per cent, according to the CMIE data.

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The ongoing fluctuations in commodity prices in the entire globe is the main reason behind the inflation spike in India. This is leading to the increase of import costs for several necessary consumables, pushing the inflation rate higher, according to the experts. 

Currently, India is witnessing a high inflation rate among many sectors. The price of essential commodities like LPG gas, food products, petrol, diesel etc, have skyrocketed. However, economists expect that these pressures are likely to come down in the upcoming months.

As of now as underlying economic activity is only gradually recovering, we have seen the limited impact of elevated inflation on economic recovery. However, going ahead with the impending complete pass-through of higher input prices, continuously surging petroleum prices have the potential to be-anchored inflationary expectations and accordingly weigh on the purchasing power of the already fragile consumer demand. This risk can be partly minimised with the help of additional supply-side interventions from the government to cap upside to inflation," said Senior Economist at Kotak Mahindra Bank, Upasna Bhardwaj.

To be sure the sharp drop in deals of farm haulers in October raises worries about the conditions in the rural economy. A report by Bank of America uncovers the increment in rural wages has been easing back, averaging 2.7 per cent year on year (y-o-y) in the April-July period contrasted with a greatly improved ascent of 7.4 per cent y-o-y in a similar period last year. Additionally, the deceleration has been more extreme for non-Agri compensation rather than Agri-compensation.

"I do not think that inflation is yet hurting economic growth in a very significant way. At this point, the inflation expectations one year ahead have come down by 60bps as per the latest survey of the RBI. This indicates that the current levels of inflation are not signalling any unhinging of inflation expectations. From RBI’s perspective, this should be comforting and would enable them to support the recovery process through its rate signalling an accommodative stance on policy," Chief Economist at YES Bank, Indranil Pan. 

Driven by a hike in rural unemployment which increased to 7.91 per cent in October from 6.06 per cent in September. Hence, overall unemployment rose to 7.75 per cent from 6.86 per cent, according to the CMIE data. 

Meanwhile, merchandise exports rose to $35.65 billion, up 43 per cent y-o-y in October and 36 per cent over October 2019. 

"India's growth of 8.4 per cent over July-Sep is welcome news. But it'll be an injustice to India if we don't recognise that, when this happens after -7.4 per cent growth, it means an annual growth of 0.2 per cent over 2 years. This is way below India's potential. India has fundamental strength to do much better," said Anurag Basu, former Chief Economist at World Bank. 


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inflation economic recovery