Despite the fact that India’s inflation rate was well above 7% in September, Finance Minister Nirmala Sitharaman said it is “at a manageable level” compared with where some other countries are at present.
But she said the government wasn’t being complacent about inflation, and said it “was working to bring it under 6% and ideally to 4%”. Sitharaman said the fundamentals of the Indian economy were in a good state, adding: “I’m not asking for celebration, but it is true that we are holding together.”
Speaking at the conclusion of the annual meeting of the World Bank group, the finance minister gave a broad overview of India’s priorities for presidency of the G-20 group of countries in 2023, in which it would focus on development banks, climate finance and cryptocurrency.
Inflation hit 7.4% in September, higher than the Reserve Bank of India’s (RBI) stipulated range, which cites 6% as the maximum.
Pointing to the rising energy prices that have fuelled inflation around the world, Sitharaman said: “Countries are being very severely impacted through external factors. We are also being impacted.”
As the rupee continues to slide against the dollar, the minister said that this was due to the dollar strengthening, not the Indian currency sliding.
Speaking to the media at the World Bank event, Sitharaman said that rupee has “withstood dollar’s rise and has performed better than those of many emerging market currencies”.
She added that RBI is working to prevent further currency slides and contain its volatility. “I will just say that rupee will find its own level,” she said.
Despite rising inflation and soaring food prices, Sitharaman described the economic fundamentals are “good”. Foreign exchange reserves are in a “comfortable position”, she said.
Economic activity to expand, says RBI
Economic activity in India has remained resilient and is poised to expand, although monetary tightening by many countries has further weakened global economic prospects, according to senior officials at the Reserve Bank of India (RBI).
India’s resilience was due to growing domestic demand, RBI deputy governor Michael D. Patra wrote in an article in the latest issue of RBI’s Monthly Bulletin. “Robust credit growth and fortified corporate and bank balance sheets provide further strength to the economy. Headline inflation is set to ease from its September high, albeit stubbornly, on the back of easing momentum and favourable base effects,” he said
In an article headlined ‘State of the Economy’, the deputy governor (and others) wrote that these factors would entrench India’s prospects as one of the fastest-growing economies of the world.
“In an uncertain and fragile global economic environment, the Indian economy showed resilience. Indicators of aggregate demand indicate that the onset of the festive season and pent-up demand kept growth impulses strong,” the authors said.
Looking ahead, India was poised to consolidate and accelerate the recovery over the rest of the year, having analysed various aspects of the economy.
“The momentum of real GDP growth is expected to shed the drag embedded in the NSO’s [National Statistics Office] estimates for the first quarter of 2022-23 and move into positive territory in the remaining quarters, including on a seasonally adjusted basis,” they said.
They added that easing in international price pressures in commodity and supply-chain pressures were likely to contribute to the falling of costs and prices.
“While the persistence of headline CPI inflation above the tolerance band for three consecutive quarters (up to September) will trigger mandated accountability processes, monetary policy remains focused on re-aligning inflation with the target,” they said.
The RBI officials said easing of inflation would “inject confidence into both consumers and businesses, recharge investment and improve the international competitiveness of India’s exports”.
However, they also warned: “The fight against inflation will be dogged and prolonged, given the long and variable lags with which monetary policy operates, and fraught with uncertainties. Yet, if we succeed, we will entrench India’s prospects as one of the fastest-growing economies of the world enjoying a negative inflation differential with the rest of the world.”
“This happy outcome will re-enthuse foreign investors, stabilise markets and secure financial stability on an enduring basis,” they added.