Indian fiscal and monetary authorities must remain watchful even as the nation is one of the bright spots amid a “gloomy global scenario where the dark clouds of recession gather”, the finance ministry said on Saturday.
“Inflation trajectory remains dependent on geopolitical developments,” the report stated, adding risks to inflation were amplified by an appreciating U.S. dollar,” the ministry said in its monthly economic review.
The report noted the country had sufficient forex reserves despite a rapid fall in the value of the Indian rupee.
India’s wholesale inflation has significantly reduced from its peak of 16.6% in May to 10.7% in September thanks to moderating commodity prices and government measures but retail inflation remains above the Reserve Bank of India’s upper tolerance band due to an uptick in food prices, the report stated.
“Even as commodity prices have softened, elevated imported inflation is expected to be an upside risk with the outlook for crude oil remaining uncertain and significantly tethered to geopolitical conditions,” it stated.
However, food inflation is expected to moderate as the harvesting and procurement seasons progress, contributing to a falling headline retail inflation in the rest of the fiscal year.
Measures undertaken by the government to reduce the burden of soaring inflation on consumers, including an increase in fertiliser subsidies other welfare measures, may stress finances, the report added.
(Writing by Rupam Jain; Editing by Lincoln Feast)
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