‘No scope for upside surprise on inflation, to ease with monsoon’

THERE IS no scope at the moment for “nasty upside surprise” to India’s inflation rate that is expected to ease during monsoon to 4 per cent, the mid-point of Reserve Bank of India’s (RBI) medium-term target of 4 per cent with a +/- 2 per cent tolerance band, Chief Economic Adviser V Anantha Nageswaran said on Wednesday. Nageswaran also said that there was a high possibility of India’s Gross Domestic Product (GDP) growth touching 8 per cent in FY24.

On the recent data showing a decline in net financial household savings to a five-year low in FY23, Nageswaran said there was a “portfolio shift” towards real assets.

“At the moment it (inflation) is well within the RBI’S reference range and the expectation is that, subject to monsoon, it will continue to head towards the midpoint of the target range…we don’t see, at the moment, scope for nasty upside surprises. There can always be scenarios in geopolitics that can cause inflation to be more than what we expect but at this point, the baseline scenario is that inflation gradually converges to the midpoint of the target range,” Nageswaran said at an event organised by the National Council of Applied Economic Research (NCAER).

Retail inflation had slipped to a 10-month low of 4.85 per cent in March, primarily led by a moderation in food and fuel prices, especially lower petrol, diesel and LPG rates. The next inflation print is scheduled to be released

On the growth beyond FY25, CEA Nageswaran said, there is a possibility of India growing between 6.5-7 per cent. File

Monday. Nageswaran said the investment made in supply-side augmentation of both physical and digital infrastructure has placed the economy to pursue non-inflationary growth, adding that this also helps absorb the challenge of overheating.

On tax-gdp ratio, he said it has been steadily improving, of both indirect and direct taxes. “I think the kind of tax-gdp ratio we have for an economy of this per capita income is commensurate…we need to appreciate personal income tax, corporate tax, GST registering healthy growth, aligning or even higher than nominal GDP growth, and therefore tax-gdp ratio is steadily increasing. We just need to allow the organic evolution of these trends,” he said.

For the ongoing financial year, he said, the International Monetary Fund has an estimate of 6.8 per cent growth rate for the Indian economy but the RBI expects a 7 per cent GDP growth for

FY25. "If that materialises, of course, it will be the fourth consecutive year after Covid starting from FY22 that the economy will have grown at 7 per cent or more. The RBI forecasts of 7 per cent for FY25 turns out to be either correct or even underestimate, then it would be the fourth consecutive year of 7 or higher growth rate," he said.

However, he said, a lot would depend on how the monsoon shapes up. Although the expectations are that there will be an above-normal monsoon, spatial and temporal distribution will matter. On the growth beyond FY25, he said, there is a possibility of India growing between 6.57 per cent because the key difference this decade as against the last is of balance sheet strength in the financial and non-financial sectors and the corporate sector as well.

“Deregulating compliance and inspections at local and state govt levels, and continued investment

and focus on skilling as well as the health dimensions of our young demography all of these will help us grow at a steady rate of close to 7 percent and the more we address some of the legacy issues it can even rise further based on the strength of the domestic economy,” he said.

NCAER Director General and member of Economic Advisory Council to the PM (EAC-PM) Poonam Gupta said India’s GDP growth rate has become more resilient due to macroeconomic stability with various shocks, which mattered in the past, impacting it much less now.

“The IMF has projected acceleration in global growth and world trade volumes, decline in inflation rates, and oil prices to remain around the current levels. Based on its domestic strengths and a favourable global outlook, the Indian economy may be expected to grow at a 7 plus rate this year and next,” she said.