Finance minister Nirmala Sitharaman on Wednesday exuded confidence that inflation would further decline and the government is on track to meet its budgetary target for deficit and said that there is no fear of stagflation in India.
Replying to the debate on first batch of Supplementary Demands for Grants 2022-23 in Lok Sabha, the finance minister said inflation has come down and it is now in the tolerable band of the RBI.
Inflation has been declining since April 2022 and it is declining further, she said.
As per the law, Monetary Policy Committee headed by RBI Governor has been given task of maintaining inflation at 4 per cent with the upper tolerance limit of 6 per cent and the lower tolerance limit of 2 per cent.
“We will bring it down further for the sake of common people,” she quipped saying the issue is being raised by Congress during whose regime inflation was in double digit.
Prime Minister Narendra Modi and his group of ministers are constantly watching and making periodic interventions and taking measures to keep inflation under check to ensure that the poor do not have to bear the extra financial burden, she added.
Several supply-side measures have been taken by the government to address inflation, including reduction in excise duty by Rs 8 per litre on petrol and Rs 6 per litre on diesel on May 21, 2022, prohibition of export of wheat products, imposition of export duty on rice, and reduction in import duties, she said.
In addition, the government has imposed stock limits on edible oils and oil seeds, and the inclusion of soya meal as an essential commodity in the schedule of the Essential Commodities Act, 1955 and imposition of a stock limit on soya meal.
The finance minister stated that there is no fear of stagflation as far as India is concerned.
Stagflation is a phenomenon when there is slowdown in economy and high inflation, she said, adding, retail inflation has come down below 6 per cent to 5.8 per cent and the wholesale price index at 21-month low of 5.85 per cent in November.
India is the fastest growing economy and lower inflation with forebearance limit, she added.
With regard to fiscal deficit, the finance minister said the government would be able to meet the fiscal deficit target of 6.4 per cent of the GDP for the current financial year.
The government is committed to the path of fiscal consolidation, she added.
On declining value of the rupee against the US dollar, she said, “Every report has told you that Indian rupee has only strengthened against the dollar…we have performed much better than many other emerging market economies.”
Exchange rate of the Indian Rupee (INR) is market-determined. INR, which had earlier weakened by 8.7 per cent against the US dollar till October 19, 2022 has since pared some of the losses and its depreciation stands at about 6.9 per cent in the current financial year till November 30, 2022.
In comparison to emerging market peer currencies, INR movement has been relatively stable.
Further, it has performed better than most Asian peer currencies, including Chinese Renminbi which depreciated 10.6 per cent, Indonesian Rupiah (8.7 per cent), Philippine Peso (8.5 per cent), South Korean Won (8.1 per cent), and Taiwanese Dollar (7.3 per cent), during the financial year.
Moreover, she said, INR has fared better than other emerging market currencies such as Turkish Lira (21.2 per cent), South African Rand (15.1 per cent) and Brazilian Real (8.7 per cent).
Speaking about banking sector, Sitharaman said, non-performing assets (NPAs) have come down drastically to 7.28 per cent at the end of March 2022 due to various measures taken by the Modi government.
NPAs declined as a result of the government’s 4Rs strategy of recognition, resolution, recapitalisation and reforms, she said.
Asset Quality Review (AQR) initiated in 2015 led to a surge in stressed accounts. It reached a peak of 14.58 per cent and then eased to 11.59 per cent.
Replying to criticism about repo rate hike by Reserve Bank of India (RBI), Sitharaman said it has touched a high of 8 per cent during UPA’s time but it is 6.25 per cent at the moment.
With the latest hike, the repo rate or the short-term lending rate at which banks borrow from the central bank now has crossed 6 per cent.
This is the fifth consecutive rate hike after a 40 basis points increase in May and 50 basis points hike each in June, August and September. In all, the RBI has raised the benchmark rate by 2.25 per cent since May this year.
The finance minister also underlined the need for reaching self sufficiency in fertilizer production as additional demand in the supplementary is towards meeting subsidy on this front.
“I want to highlight the fact that India which is largely an importer of fertilizers will have to now also start working on self sufficiency as regards fertilizer manufacturing in this country and a lot of efforts have been going on on that score,” she said.
With regard to capital expenditure (capex), she said, 54 per cent of the Budget estimate of Rs 7.5 lakh crore for FY23 has been utilised in first six months of the fiscal.
Terming Mahatma Gandhi National Rural Employment Gurantee Act (MGNREGA) as a demand driven scheme, she said allocation for this scheme has come down in recent past due to less demand.
Quoting the World Bank report, she said India’s forex reserves is one of the highest in the world and this provide a cushion against global spillover.
“Since the taper tantrum in 2013, India’s forex reserves have almost doubled and provide better coverage of external debt than other emerging market economies. India’s more resilient related to the other economies with strong growth, low private sector indebtedness, and high foreign exchange reserves, but with high public debt and a recovering banking sector,” she said quoting the report.
India’s economy is relatively more insulated from global spillovers than other emerging markets. India’s less exposed to international trade flows, she said, adding the report also highlights that India’s external position has improved considerably over the last decade.
Later, the House passed the first batch of Supplementary Demands for Grants, authorising the government to make additional expenditure of Rs 3.25 lakh crore in FY23.
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