A poll accumulated by media agency Reuters suggests that India’s retail inflation would most likely stay above the medium-term target range set by the apex financial institution of the country, the Reserve Bank of India for the month of August. This would be the case for the fifth month in a row. The main reason for the inflation is due to the supply disruptions which skyrocketed the food and fuel prices.
India’s COVID-19 pandemic is in no way over. Although unlock procedures have been initiated by the country’s union government newfound cases keep on piling up. Several states continue to regularly impose lockdowns to try and control the spread of the virus. Therefore, even after easing the country based lockdown restrictions, supply chain disruptions still affects large parts of the country, which in turn comes in the way of recovery of the country’s economy.
Reuters, the media agency, published reports of a poll they conducted between September 4th and 9th. According to the report they published accumulating views of nearly 50 economists suggest that consumer prices rose 6.85 percent last month from a year ago.
However, the rise is lesser than that, which was seen in July. In July a 6.93 percent hike was recorded. Still, the 6.85 percent surge in August is higher than that the Reserve Bank of India targetted it to be. According to RBI’s target, they tried to keep the inflation range between 2 to 6 percent. The inflation rate was recorded higher than RBI’s estimated range for the fifth straight month, which is not seen since August of 2014.
Reuters reported the comments of Sakshi Gupta, senior economist at HDFC Bank as she said, “Supply-side disruptions have led to an increase in food prices, especially vegetables. Moreover, some pent-up demand supported core inflation along with high gold prices and an increase in excise duty on petrol and diesel that have second-round effects.”
Transportation is pointed out as a key sector, which is still being affected due to the rise of COVID-19 cases. As several states still keep on imposing lockdowns the transport sector gets affected delaying the supply of products and increasing the demand. This hikes up the cost of products.
Most parts of the country received good monsoon rain, which is key for agricultural production. Although many thought this would help to meet the demand and ease the rise in food price, delays in transport and disruptions in the supply chain cause problems and pose a major concern in the path of recovery of the Indian economy.
India, the third-largest economy of continent Asia, clocked a contraction of 23.9 percent in the last quarter. This is one of the largest contractions recorded by any country ever, in the world.
The Reserve Bank of India kept rates on hold last month on concerns over rising price pressures. RBI also previously had brought down its key repo rate by a cumulative 115 basis points to ease the sufferings of the citizens of the country, since the COVID-19 pandemic began.
Aditi Nayar, the principal economist at ICRA, told to Reuters, “We think the trajectory of inflation suggests a very high likelihood the monetary policy committee will remain on hold in the next two meetings with the final rate cut possible in February 2021.”
The poll, conducted by Reuters also predicts that the industrial output plunged by 11.5 percent in July. This would mark the fourth straight month of the decline of the industrial output, which is also a major concern.
The Indian economical struggle increases with each passing month. As COVID-19 is still at large in the country, it is hard to predict when things might come under the control of the government. However, both central and states are trying their best to keep the situation in their hand, nothing concrete can be predicted yet on when the Indian economy might start recovering. (Reuters)