Inflation may not be as big a problem as it was in 2022, but uncertainties remain high

The Chief Economic Advisor Anantha Nageshwar on Tuesday said that while the baseline assumption is that inflation should not be as big a problem as it was in 2022, he would concede the uncertainties remain high.

Nageswaran told journalists in New Delhi after Finance Minister Nirmala Sitharaman tabled the Economic Survey in Parliament that inflation is projected to remain "well behaved" in FY2023-24, barring headwinds. According to the CEA's Economic Survey, the RBI's forecast of retail inflation at 6.8 per cent in the current fiscal year is neither too high to dissuade private consumption nor too low to diminish inducement to spend.

Addressing the CEA’s annual press conference Nageswaran today said inflation may not be as big a problem in the next financial year as it was in 2022, even though uncertainties remain. Speaking on the Economic Survey 2022-23, Nageswaran says he expected inflation to remain well-behaved in 2023-24 with upside risks.

"We expect if the global economy slows down as IMF and many people project, then commodity prices should retreat on the back of the monetary tightening. The Reserve Bank of India (RBI) has projected inflation to remain below the 5 per cent range in the next financial year. Many Indian economists, in such circumstances, forecast a significantly lower wholesale price index for the coming fiscal year,” he said.

Nageswaran said it was impossible to anticipate a number for the oil price when asked if the current price of oil will affect the GDP growth forecast of 6.6 per cent to 6.8 per cent in FY24. The RBI accepts bids of less than $100 per barrel. That sum is manageable, and it will get us to the growth rate we predicted in the poll. The oil industry is fraught with enormous uncertainty. He continued, "I think the real GDP growth predictions will stay undisturbed as long as they are at a number that is less than $100 a barrel," he said.

Dr. Pronab Sen prominent economist and former chairman of the National Statistical Commission, commented on the Economic Survey 2022-23 by saying that although employment is slowly returning to the market after the pandemic-induced business meltdown, the quality of these jobs is often inconsistent because they are concentrated in the informal sector.

"With population expansion and more new entrants joining the job market jostling with individuals who lost work during the pandemic, job possibilities are still too few and far between. Growth is being driven primarily by large corporations, who have recovered from two years of COVID-19, but the micro, small, and medium enterprises (MSME) or semi-formal sector is partially dead and partially has not recovered from the double whammy of demonetisation and the pandemic," he said.

Aditi Nayar, chief economist and Head-Research and Outreach at ICRA observed that the Survey highlighted that the current account deficit (CAD) needed to be monitored closely, as a widening on this front could lead to further depreciation pressure on the rupee.

“We expect the absolute size of the CAD to widen in FY24; however, as a proportion of GDP, it is likely to remain similar to the 3.3 per cent levels expected in FY2023. Trends in the dollar index and the US policy rates would determine the movements in the INR. A pivot by the US Federal Reserve in the second half of 2023 could lead to a sharp correction in the Dollar index chart, thereby easing some pressure off the rupee during this period,” she said.