Many of the after burns of corona and the nation-wide lockdown that followed can be still felt by the economy of the country. One of them is the rising inflation rate, something which is making the Reserve Bank of India uncomfortable.
The retail inflation is at 8 months high (at 7.34%), according to the data released by the National Statistical Office (NSO). The biggest concern is that this inflation is increasing despite having good implementing measures like controlling the capital flow and keeping the repo rate steady is still deteriorating. It is mainly driven by food inflation, which will hurt the poor the most. These figures go much higher than RBI’s medium-term policy that is 4+/- 2%. In a sinking economy if the inflation rate is not controlled fast then there is always a risk of stagflation.
To add to the misery, we have the Index for Industrial Production (IIP) figures which say that the economy is still negative in August and the industrial production is contracting to record an 8% contraction in September, mainly driven by the degrowth in manufacturing.
Reserve bank of India’s last week statement predicts that the food inflation should ebb once the Karif crop comes into the market especially the prices of potato, tomato, and onion. The prices of pulses and oilseeds are likely to remain firm because of the rise in import duties.
There is a gradual improvement in the industrial output, as the IIP contracted 8.6% in September in comparison to 11.6 % in August. There are greens shoot in the economy and at the same time, the figures and the index are showing a not so grim and continuously improving picture. But the situation is far from normal and growing food inflation in this situation will do nothing but going to add to the misery.