While Reserve Bank of India remains worried, Finance Ministry in its monthly economic review has expressed optimism that moderation in prices of key food items is expected soon with bumper kharif (summer crop) harvest to lower food inflation in the coming months
“Early November trends signalled moderation in key food prices, though geopolitical factors may continue to impact domestic inflation and supply chains,” read Finance Ministry’s monthly economic review.
Further talking on inflation, the ministry said that the inflation trajectory will largely be influenced by the price movements in edible oils, tomato, onion and potato. “On the positive side, the early trend visible in vegetable prices in November so far signals significantly lower inflation in tomato and onion,” said the economic review.
RBI worries, FinMin at ease:
India’s retail inflation surged to a 14-month high in October to 6.21 per cent, driven by high vegetable prices.
“A bumper kharif (summer crop) harvest is expected to lower food inflation in the coming months,” the review said.
“Early November trends signaled moderation in key food prices, though geopolitical factors may continue to impact domestic inflation and supply chains,” it said.
As Nirmala Sitharaman-led Finance Ministry expects the inflation to ease, RBI has remained on the opposite side. The Reserve Bank of India has kept interest rates unchanged for almost two years, with Das repeatedly dashing hopes of rate cut despite the central bank shifting its policy stance to neutral recently. A sharp spike in inflation in October to above the 6% upper end of the target band has given the RBI further reason to stay hawkish. Most economists see a rate cut only early next year.
Calls are growing louder from within the government for the RBI to ease. Finance Minister Nirmala Sitharaman and Trade Minister Piyush Goyal both recently stated that high borrowing costs are hurting the economy.
The next rate decision is scheduled for Dec. 6. Das’s current three-year contract ends on Dec. 10, with no signal from the government or RBI if the governor will remain in his post.
US to decide the course of trade
Additionally, while expressing concerns over geopolitical tensions, the Finance Minstry has mentioned that
the next administration in the United States after Donald Trump officially takes charge will determine the course of trade and capital flows.As the finmin review highlights how United States under Donald Trump will dominate trade flows, India has to be prepared for higher tariffs in the Trump regime and slower global export growth, which will present challenges, chief economic advisor (CEA), V Anantha Nageswaran has said earlier. Exports is not an effective engine for growth because global trade is projected to slow and US tariffs may make it more challenging, Nageswaran said at the SBI Banking & Economics Conclave.
“At this stage it is difficult to give quantifiable answers on Trump tariffs. We know that India has a bilateral trade surplus with the United States both in goods and services so there will be pressure, but some of it also work to our advantage because in some of those areas we may have to reduce some duties to be competitive as well. So I don’t think it would be necessary for us to assume that it will be negative for India and right now we don’t have orders of magnitude I don’t think we should be too exercise about various scenarios and building theoretical constructs as to how much it will impact export growth,” Nageswaran said.
US is among the six countries that India has a trade surplus with. India’s trade surplus with the US was $21 billion during the first half of calendar 2024.
