Ministry matters

Finance Ministry expects rural demand to rise as inflation falls

Rural demand in India, which was buffeted by the Covid-19 pandemic and then by high global inflation, is expected to recover as prices fall and the southwest monsoon proves favorable for the planting season. , the Ministry of Finance said in its latest monthly economic report. (SEA).

“Kharif sowings supported by the southwest monsoon, coupled with a higher minimum support price for kharif crops, are likely to increase rural demand. Urban consumption should benefit from demand for contact-intensive services, improving business performance and growing consumer optimism,” the July MER said. The report was written by the Economics Division.

As previously reported by Business Standard, various unofficial indicators show that with the help of several favorable factors, including high agricultural prices, improving economic activity in the informal sector and economic growth in general, improvements were recorded in a few segments of the wider rural sector, but these were offset by high inflation.

The July REM indicated that barring any further shocks, the downward movement in global commodity prices, together with the Reserve Bank of India’s monetary measures and the government’s fiscal policies should limit inflationary pressure. In the coming months.

India’s headline retail inflation for July hit a five-month low of 6.71%, helped by easing global commodity prices and lower domestic food prices. Nevertheless, it was higher than the medium-term objective of the Monetary Policy Committee (MPC), thus justifying the recent monetary tightening.

“Measures such as the maintenance and calibrated release of buffer stocks in the case of rice, pulses and onions, and export restrictions in the case of wheat should help control food inflation. The easing of inflationary pressure in India is even more present as the prices of important commodities, such as iron ore, copper, tin, etc., fell overall in July 2022,” the report says. .

MER said the service sector, particularly touch services like hospitality, leisure and tourism, which have been hit the hardest by the Covid-19 pandemic, can emerge as a key growth engine, supported by the release of pent-up demand, the easing of mobility restrictions and near universal coverage in Covid vaccination.

“Robust production of capital goods, along with a surge in government investment spending and a strong expansion of bank credit, will support investment activity. The manufacturing sector should benefit from lower input prices and of rising consumer demand during the festive season,” MER said. It added that India’s financial sector is proving to be a “pillar of resilience.”

“The balance sheets of the private sector and the banking sector are healthy and there is a willingness to borrow and lend, respectively. Therefore, barring further adverse shocks to commodity prices and hence India’s terms of trade, economic growth will consolidate and maintain momentum in 2023-24,” he said. -he declares.

The EMN warned that global macroeconomic headwinds remain due to the ongoing war in Ukraine and fears of recession among developed economies.

“The geopolitical environment remains tense and heavy. This could trigger further winter supply issues for key commodities, such as crude oil and natural gas. Inflation rates are still stubbornly high. Without further significant policy tightening, it is difficult to see the inflation rate in the advanced world falling to around 2-3%,” he said, also alluding to the slowing Chinese economy.

“It’s not necessarily the right thing to do to project optimism or pessimism too far in these uncertain times. For now, India looks better placed on the growth-inflation-external balance triangle for 2022- 23 than two months ago,” the report said.

Even with lower growth projections for FY23 by multilateral institutions – now in line with the RBI forecast of 7.2% – India is still on course to be the fastest growing major economy in the world this year.