Lower food and vegetable prices eased wholesale inflation to 5.20% in April from the previous month’s 5.70% but the relief could be short-lived with a below-average monsoon predicted for coming months, presenting a challenge to the new government.
Low growth and high inflation dominated the campaign for the Lok Sabha elections, the outcome of which will be declared Friday. Exit polls have projected a win for the BJP whose prime ministerial candidate Narendra Modi promised early return to a high-growth phase and more jobs while seeking votes for his party.
June-September rains are crucial for India’s summer-sown kharif crop. Insufficient rains could harm output and push up food prices. Lower farm income can also hit demand for goods such as televisions and cars, hurting growth.
Food inflation in April stood at 8.64%, down from 9.90% in the previous month, primarily because of sharp drop in vegetable prices, data released Thursday showed.
Manufactured products inflation, however, remained sticky at 3.15% against 3.23% in March, not a good sign in a slowdown year when demand is expected to be subdued.
Output for consumer goods has been contracting and firms aren’t quite adding capacity lines to cater to rising demand.
Retail inflation rose to a three-month high of 8.59% in April while industrial output fell 0.5% in March,
High inflation is also likely to dash hopes of a rate cut by the Reserve Bank of India (RBI) that presents its credit policy review next month.
Finance secretary Arvind Mayaram said the government would have to remain cautious about the impact of monsoon.
"We believe we need to be cautious and alert. But we have adequate stocks of foodgrains to meet any eventuality. I do not believe that a slightly sluggish monsoon is going to really impact the supply chain in a manner that will be disruptive."