Inflation under control thanks to carefully measured stimulus: Sitharaman

Updated on Feb 11, 2022 02:12 PM IST

The finance minister said there are countries that spent big money to revive their economies after being hit by the pandemic, but India took a careful approach taking into account both lives and livelihood

Finance minister Nirmala Sitharaman in the Rajya Sabha during the Budget Session of Parliament in New Delhi on Friday. (PTI)
Finance minister Nirmala Sitharaman in the Rajya Sabha during the Budget Session of Parliament in New Delhi on Friday. (PTI)
ByRajeev Jayaswal

NEW DELHI: India’s carefully measured stimulus packages helped keep inflation under control while accelerating economic growth in stark contrast to huge demand-side largesse in some of the advanced economies around the world that escalated prices of essential commodities, finance minister Nirmala Sitharaman said on Friday. She was citing the examples of the US and Germany.

Replying questions on inflation during the Budget discussion in the Rajya Sabha, Sitharaman said, “US inflation, reported in all papers today, is highest in 40 years. US inflation... cash transfers were made, huge stimulus packages were given… this is the effect,” she said while displaying a copy of the news in the House. Germany is also facing high inflation, which they haven’t faced since 1992, she added.

The US labour department said on Thursday that the consumer price index (CPI) climbed 7.5% during the 12 months till January, its largest increase since February 1982 as costs spiked for a wide range of items. HT reported it quoting AFP on Friday.

Linking the inflation challenges faced by the advanced economies to huge direct demand stimulus that eventually caused more hardships to the poor, Sitharaman said there are countries that spent big money to revive their economies after the devastating impact of the Covid-19 pandemic, but India took a careful approach taking into account both lives and livelihood.

“Advanced economies relied on large stimulus, almost entirely on the demand-side measures they relied on for direct support without attention to… [inflation]. It is their prerogative, they can do it. Their outcome today is high inflation,” she said.

Also Read: ‘Modi govt handled economic crisis better during pandemic than UPA in 2008-09’

According to the Reserve Bank of India(RBI), the country’s inflation projection is well within the tolerance limit. The RBI on Thursday retained inflation projection for 2021-22 at 5.3%, with Q4 at 5.7% on account of unfavourable base effects.

“Taking all these factors into consideration and on the assumption of a normal monsoon, CPI inflation for 2022-23 is projected at 4.5% with Q1:2022-23 at 4.9%; Q2 at 5%; Q3 at 4%; and Q4 at 4.2%, with risks broadly balanced,” RBI governor Shaktikanta Das said after meeting of the monetary policy committee. The official prescribed limit for CPI inflation is 4%, plus/minus 2%.

Yesterday, while participating in the Budget debate, Sitharaman drew a parallel between two economic crises – one that took place in 2008 and another one caused by the Covid-19 pandemic in March 2020. She said the Narendra Modi government managed the pandemic-induced economic crisis in 2020-21 better than the Congress-led UPA government did during the global economic crisis in 2008-09. HT reported it on Friday.

On the criticism that the government is overemphasising on capital expenditure in the Budget at a time when it should boost consumption, Sitharaman said the return on 1 spent for revenue expenditure is only 0.45, while 1 spent on infrastructure gets a return of 2.45 in the first year and 3.14 subsequently for two more years.

Justifying raising customs duty on umbrella from 10% to 20%, she said it is done to protect domestic small and medium enterprises as India was flooded with “25 million umbrellas from one country”. While she did not mention the name of the country, according to officials, the reference was to China, which has been selling umbrellas in India.

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