‘India is well prepared to face increase in import basket cost; Wholesale inflation will come down soon
‘India is well prepared to face increase in import basket cost; Wholesale inflation will come down soon
Terming the current price levels as “sustainable”, the Finance Ministry on Tuesday said these prices are expected to come down soon, while India is well positioned to deal with the increased import costs thanks to its record forex reserves. .
The ministry said the impact of recent developments, including the Ukraine-Russia crisis, on India’s growth, inflation, current account and fiscal deficit will depend on the persistence of commodity prices at higher levels.
“Given the inherently volatile nature of higher prices, international commodity prices are expected to close early with increased supply outside the crisis zone,” the ministry estimated in its monthly review of the economy for February.
The ministry said geopolitical tensions between Russia and Ukraine have caused “massive turmoil in the global economy”, with rising crude oil and other commodity prices and “increasing the cost of India’s import basket”. ‘. However, its impact on India’s activity level this month can be assessed only a month later, given that foreign exchange reserves are sufficient to finance 12 months of imports.
The Finance Ministry acknowledged that geopolitical developments in the new fiscal year 2022-23 have introduced an element of uncertainty in the outlook for economic growth and inflation. “However, the budget with its capital expenditure orientation and strong macroeconomic fundamentals will support growth with prudent assumptions and provide a floor to it amid global political turmoil and potentially high volatility in financial markets,” it emphasized.
Volatility in crude oil prices is expected to dominate the inflationary trend in the coming months, and the government is taking steps to mitigate adverse effects from this ‘imported inflation’, such as India’s growth beyond conventional hydrocarbons. Import and diversify energy sources into ’emerging fuels’ such as ethanol. Compressed bio-gas, the ministry said.
On the growth in wholesale inflation, which averaged 12.7% between April 2021 and February 2022, the ministry said a part of the observed growth is attributable to the lower base in the same period last year, when inflation in wholesale prices was recorded. Was. 0.7%. The ministry argued that with the base effect ending, the wholesale inflation rate should moderate.
“The demand-supply mismatch and geopolitical tensions between Russia and Ukraine have seen a sharp increase in crude oil prices in February 2022. The price of India’s crude basket has increased by 43.8% from April 2021 to February 2022. The average price for February is USD 93.1/barrel,” it reported.