RBI, govt continue to maintain ‘guarded’ approach amidst rising food inflation: FinMin

The Reserve Bank of India and the central government continue to maintain a guarded approach for appropriate and timely policy response, amidst the rising food prices in the country, according to the finance ministry's monthly economic review report.

"A rise in the prices of 'fruits,' 'vegetables,' and 'pulses and products' owing to weather-related disruptions increased CPI-Food inflation from 3% in May 2023 to 4.5% in June 2023, underscoring the need for a guarded approach by RBI and the government," says the report.

The report comes amidst soaring prices of vegetables and fruits in the past few weeks, owing to supply-chain constraints and weather-related disruptions. The country's headline inflation surged to 4.81% in June but was within the RBI's tolerance band of 2-6%. The wholesale price inflation (WPI), however, continued to decline to -4.21%, owing to a fall in prices of mineral oils, food products, basic metals, crude petroleum, natural gas and textiles.

The report has been released a week ahead of the RBI's monetary policy committee (MPC) meeting on August 10. In the last policy meeting in June, the apex bank kept the key repo rate unchanged at 6.5%, while withdrawing the 'accommodative' stance.

According to the finance ministry, the country's economy continues to remain strong. "Real GDP growth data for the last quarter of FY23 reaffirmed the ability of the Indian economy to grow on the strength of its domestic demand and investment despite a rise in global uncertainties and moderation in global output," says the finance ministry.

Notably, the finance ministry says that global growth is projected to decline from 3.5% in 2022 to 3% in 2023 and 2024. But despite global uncertainties, the country’s exports are expected to perform well in the next quarters of FY24.

"Despite adverse global developments, India's exports are also expected to perform well, driven by strong performance in services exports. Increased digitisation drive, growing preference for remote working and increased proliferation of global capability centres are expected to further increase India’s services exports. Accompanied with an easing of supply chains and a decline in global commodity prices, the trade deficit is expected to improve further in the coming year," says the finance ministry.

"India's improved monsoon performance, solid fiscal performance, continued expansion in manufacturing and services sectors, and vigorous capital expenditure spending by the public and private sectors augurs quite well for India’s macroeconomic stability and growth in FY24. But the price of such stability and growth is eternal policy vigilance," it adds. 

The finance ministry, however, says that the negative cross-border spillovers and adverse global developments can act as a deterrent for the country in order to achieve the potential high growth path in the current financial year.