Persistent inflationary threats keep RBI, Centre on high alert: GoI's October economic report

The latest monthly economic report from the finance ministry, released on 21 November, highlights that the Centre and the Reserve Bank of India (RBI) remain on high alert over lingering inflationary risks.

Despite this, the report suggests, recent declines in international crude oil prices and sustained moderation in core inflation could help alleviate inflationary pressures.

The report underscores the significance of the recent drop in global crude oil prices, with India's crude oil basket averaging $83.93 a barrel in November, down from $90.08 in October, according to government data. The headline retail inflation rate in India also decreased to a five-month low of 4.87 per cent in October, remaining within the RBI's tolerance band of 2–6 per cent for the second consecutive month.

While food inflation stayed at 6.61 per cent, core inflation (excluding food and fuel) has declined from 4.5 per cent in September to 4.2 per cent in October, the ministry has reported.

The report attributes these positive developments to the government's multifaceted approach, including export bans on certain commodities and discounted sales of essential items.

The finance ministry's report does still emphasise the need to monitor external financial flows closely, recognising their direct impact on the rupee's value and the balance of payments.

Despite India's merchandise trade deficit reaching a record high of $31.46 billion in October, economists anticipate a moderation in the gap, expressing minimal concern about its impact on the country's current account dynamics.

Addressing potential risks, the report highlights that a fuller monetary policy transmission may temper domestic demand. However, it remains optimistic about India's growth prospects, anticipating a positive outcome in FY24 compared to other major economies.

Sustained focus on public investment in infrastructure and advancements in digital public infrastructure are cited as factors contributing to India's potentially longer economic and financial cycle.

The finance ministry report also reiterates that the Indian economy has demonstrated remarkable resilience amid a global slowdown, and that this has been driven by a robust domestic demand.

The Indian government and the RBI expect a GDP growth rate of 6.5 per cent at the close of 2023–24, although market expectations hover around 6 per cent. The report suggests that the July–September quarter's GDP growth may surpass the RBI's forecast, providing further evidence of India's economic resilience. Data for this quarter is to be released on 30 November.