Worsening geopolitical crisis could fuel inflation, warns FinMin report

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In a cautious move, the Finance Ministry’s economic review said on Saturday that inflation could experience a further resurgence if the geopolitical situation worsens leading to higher global energy prices and pressures on the supply chain. supply.

Observing that India has managed inflation better than most other countries in the world, the review said that barring further severe weather, retail food price inflation is expected to decline in the coming months. , resulting in lower headline retail price inflation.

However, he added, global energy prices and supplies remain sources of concern.

“Geopolitical disputes could further intensify supply chain pressures that have eased recently. If so, inflation could still see a resurgence rather than a decline in 2023,’ the review said.

Retail price inflation for India over the six months was 7.2%, lower than global inflation of 8%, represented by the median inflation of major economies, it said. -he declares.

During the same period, he added, the INR depreciated by 5.4% against the dollar, less than the 8.9% depreciation of the six major currencies in the DXY index.

A series of measures taken by the RBI in July 2022 should further stabilize capital flows and support the INR, he said.

The report said India’s growth story in the first six months of the current fiscal year highlighted the uninterrupted boost provided by the government to its capital spending which until August of the financial year 2022-23, were 46.8% higher than the corresponding period of the previous year.

The increase marked a decisive shift towards improving the quality of spending, with the ratio of revenue spending to capital spending falling to 4.5 from 6.4 last year, he said. adding that higher levels of capital spending were also supported by stronger revenue generation following improved tax compliance, increased corporate profitability and growth in economic activity.

Increased revenue generation further kept the fiscal deficit through August in line with its budgeted level, which could otherwise have gone awry with high capital expenditures, higher fertilizer and feed subsidies, and cuts in excise duties to contain inflation, he added.

While capital formation and digitalization are driving the medium-term potential growth rate, learning losses caused by pandemic-induced shutdowns and rising obesity levels are holding it back, according to the report, an India in healthy and educated is a productive India.

The government has quietly facilitated the development of India’s digital infrastructure based on a single national identity, financial inclusion and payments, he said.

Likewise, quietly rebuilding the economy’s capacity to grow and letting it grow, after at least half a decade of financial stress followed by the pandemic, the global inflationary shock and the global tightening of financial conditions, will yield results that will be most difficult for the world to miss, he added.

(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)

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