India’s retail inflation in July eased below 2 per cent for the first time in eight years, on the back of falling prices of food items including vegetables and pulses, hurting some farmers, but will have limited impact on the central bank’s policy decision.
Annual retail inflation slowed to 1.55 per cent in July compared with 2.10 per cent in June, and below a Reuters poll of 1.76 per cent.
The figure was the lowest since June 2017, according to a government statement, and below the Reserve Bank of India’s tolerance band of 2-6 per cent. The RBI is mandated to not let inflation fall below or above the range for more than three quarters.
“These inflation numbers are on expected lines,” said Madan Sabnavis, an economist at Bank of Baroda, adding that the impact on the RBI’s policy decision will be muted.
The central bank lowered its inflation forecast for the current financial year to 3.1 per cent from 3.7 per cent earlier this month. The RBI held key interest rates steady, saying the growth prospects of the domestic economy remained bright.
That was before US President Donald Trump imposed an additional tariff of 25 per cent on India — raising duties on Indian goods to 50 per cent, among the highest levied on U.S. trading partners.
The Indian government has estimated about 55 per cent of the country’s merchandise exports to the US will be subject to the tariffs.
Some economists expect the low inflation and growth impact from tariffs to leave room for another rate cut.
“The RBI’s already-lowered 12-month forecast may be undershot, raising the likelihood of further rate cuts, particularly as U.S. tariffs could shave 30–40 bps off GDP growth,” said Sujan Hajra, chief economist at Anand Rathi Group in Mumbai.
“The inflation trends are expected to remain benign in the coming months as well amid soft food inflation. Positively, the core inflation softened marginally in July. Despite comfortable inflation in near term, we do not see much room for monetary easing as medium term inflation trajectory is skewed above 4 per cent,” said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank.
Tax collection
Net direct tax collection dipped 3.95 per cent to ₹6.64 lakh crore so far this fiscal, mainly on account of higher refunds. Direct tax includes taxes on income paid by companies, individuals, professionals, and other entities.
According to data released by the Central Board of Direct Taxes (CBDT), refunds issued so far this fiscal jumped 10 per cent to ₹1.35 lakh crore between April 1 and August 11.
Net corporate tax collection rose 3 per cent to about ₹2.29 lakh crore, while non-corporate tax (which includes individuals, Hindu Undivided Families (HUFs) and firms) mop up dipped 7.45 per cent to ₹4.12 lakh crore.