2017 had been a great year for India also because in late 2017, India was announced as world’s fastest-growing major economy and that of course puts India at a greater position. Also, as per Economic survey 2018, India’s Gross Domestic Product is estimated to be between 7-7.5, and adding to it the recent news that the Inflation rate for February has been fallen down to a four month low, adds more assertiveness for the Indian growth. 

Fall in the inflation rate:

As reported by Reuters, the annual increase in the consumer price index INCPIY=ECI, the main measure of inflation in India is likely to ease in February and reach a four month low at 4.8 percent from 5.7 percent in January this year. The inflation rate cut is followed by softening in vegetable and other perishable goods’ prices, but still the inflation rate is yet to meet the target set by the Reserve Bank of India which is at 4 percent.

The estimation was conducted through a poll consisting 30 economists and the forecast range for inflation was between 4.36 percent to 5.60 percent, though the actual inflation data is due to be announced on 12th March. It’s noted that if the data announced in the main meeting gets matched with the poll, then the inflation statics would be lowest since the October.

How long would it last?

As per RBI’s data, the inflation for April to September this year is expected to be in the range of 5.1-5.6, so even if the inflation for February decreases, it would not have long lasting effects.

The expansionary budget is the main concern for the rising inflation. In budgetary allocation the Finance Minister has allocated a handsome amount for rural sector and farmers, and to abide the allocation announced, Prime Minister Modi’s administration is likely to spend huge amounts on rural welfare and agriculture from 1st April, 2018. Along with that there is an increase in the guaranteed price in form of Minimum Support Price (MSP) for the agriculture products. The rise in MSP has great potential to further affect the inflation, though Reserve Bank of India has suggested that the inflation can eased on the anticipation of normal rainfall but that’s not predictable.

As per the statement given by the economist at ICICI Security Abhishek Upadhyay, “There could be a sharp retreat in inflation in February led by a fall in perishable food prices that earlier forced the inflation upsurge from lows in June 2017, but the big picture is the prospective MSP hikes, which continue to be the elephant in the room as far as the inflation outlook is concerned.”

The conclusion:

As per the poll, the annual wholesale price inflation is likely to be at 2.50 percent in February from 2.84 percent in January. Apart from this, the industrial production for January 2018 is also expected to rise at 6.7 percent from a year ago. So, considering the inflation rate along with the target set for fiscal deficit and the forecast for the Indian GDP, it can be said that the coming financial year would be really crucial for the country and will require great policy framework to execute the targets.

P.S- The article was originally published in The Qrius (Formally the Indian Economist)


By Devanshee Dave

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