Core inflation at four-year low in FY24: Economic Survey
The survey said India successfully managed to keep retail inflation at 5.4% in FY24, the lowest level since the Covid-19 pandemic period
The government’s prudent monetary policy response and calibrated trade policy measures, coupled with strong output growth helped reduce core inflation to a four-year low in FY24, according to the 2023-24 Economic Survey Union finance minister Nirmala Sitharaman tabled in Parliament on Monday.
The survey, which was presented a day before the first Union Budget of the third Narendra Modi-led central government will be tabled, said with the commitment of the Reserve Bank of India (RBI) to the goal of price stability and policy actions by the Central Government, India successfully managed to keep retail inflation at 5.4% in FY24, the lowest level since the Covid-19 pandemic period. It noted India’s retail inflation is lower than the EMDEs (emerging market and developing economies) and world average.
“After the pandemic, the global economy experienced another set of supply chain disruptions beginning with the Russia-Ukraine war in the first half of FY23. In the latter half of the year and FY24, there was a decline in global inflation because of the diminishing impact of price shocks, particularly in energy prices, as well as lower core inflation and monetary tightening,” said the survey.
It said the Covid pandemic and subsequent geo-political tensions presented considerable challenges to the global economy in inflation management. The survey added the supply disruptions inflicted by the pandemic and increased commodity prices caused by heightened global conflicts markedly affected India. “As a result, FY22 and FY23 witnessed price pressures in core consumer goods and services. Food prices were affected by adverse weather conditions in the last two years. The net impact of these developments was elevated inflationary pressures in FY23 and FY24.”
The survey said appropriate administrative actions, including dynamic stock management, open market operations, subsidised provision of essential food items, and trade policy measures, helped mitigate food inflation to a great extent. “The expectation of a normal monsoon and moderating global prices of key imported items give credence to the benign and range-bound inflation projections for India made by the Reserve Bank of India and the International Monetary Fund.”
The survey said the medium to long-term inflation outlook will be shaped by the strengthening of price monitoring mechanisms and market intelligence as well as focussed efforts to increase the domestic production of essential food items such as pulses and edible oils for which India has a great degree of import dependence.
It added low and stable inflation is key to sustaining economic growth and that governments and Central Banks face the challenge of keeping inflation at a moderate level while ensuring financial stability. “Achieving this delicate balance requires careful monitoring of economic indicators and taking appropriate and timely corrective actions.”
The survey cited the International Monetary Fund and said the coordinated monetary tightening by Central Banks in major advanced economies during 2022-23 significantly contributed to the decline in energy prices due to its high level of synchronisation and the resulting impact on reducing global energy demand. “Despite the synchronous tightening of monetary policy by most central banks to restore price stability, the global economy has shown unexpected resilience in 2023. This is evident in both advanced economies (AEs), and emerging markets & developing economies (EMDEs), as they are returning to their inflation targets. This trend is also observed in India. As per the IMF2 data, where India’s inflation rate was lower than the global average and that of EMDEs in 2022 and 2023.”
The survey said there is a clear negative relationship between cross-country inflation and per capita GDP. “Historically, inflation in advanced economies has generally been lower than in EMDEs. Factors such as established monetary policies, economic stability, well-developed and efficient markets that balance supply and demand conditions, and stable currencies contribute to the effective management of inflation.”