MUMBAI: The lingering impact of supply shocks is far from over. The increase in vegetable prices has extended into the first half of August, prompting expectations of headline inflation averaging ‘well above 6%’ in the second quarter, a report published by RBI said. The report comes days after the government released July inflation data, placing headline inflation for the month at 7.4%. While raising concerns over inflation, the report is upbeat on growth.
“In this stressed global environment, the Indian economy is gathering momentum in the second quarter of 2023-24,” according to the state of the economy report. It said that domestic drivers such as private consumption and fixed investment are offseting the drag from the contraction in exports.
With strong growth momentum, the RBI report has ruled out the risk of stagflation – a period of rising prices and low growth. “Historical analysis shows that high stagflation risks were encountered during certain periods such as the Asian crisis (1997-98), the global financial crisis (2007-09), the taper tantrum (2013), and the pandemic,” the report said. But the current probability is only 3% because of the easing of financial conditions, stability in exchange rates and steady domestic fuel prices.
The report said that the economy’s vulnerability to recurring vegetable price shocks, especially during the monsoon period, underscores the need for comprehensive reforms within perishable supply chains. These reforms would encompass transportation networks, warehousing, storage technologies, and value-addition processes to mitigate the extent of these price fluctuations.
“Stable prices for consumers assured supplies and remunerative proceeds for farmers will follow when these reforms lead to efficiency and productivity gains while preserving the quality of output and building up insulation against food inflation from climatic events,” the report said.
