Onus on fuel duty cut to ease price worry
The hike in input costs along with rising crude oil prices are a source of worry on the inflation front but the recent fuel duty cuts should soften the price pressures, the finance ministry said on Wednesday.
“Core inflation, which reflects the hardening of input costs and the ripple effects of escalating global crude oil prices, poses concerns. Yet, these concerns have not embedded themselves in self-fulfilling inflationary expectations as seen in RBI’s inflation survey,” the ministry’s monthly economic report said.
“The recent cut in central excise duty on petrol and diesel prices is expected to soften inflationary pressures exerted by rising crude oil prices.”
North Block expects food inflation, which had hit a 30-month low in September, to cool down further in October, bringing retail inflation down below the level of 4.4 per cent recorded in September.
Good kharif production and adequate buffer stock of food grains are expected to keep food inflation low, the report said.
The easing of inflation pressures, reflected in the retail inflation staying ‘‘comfortably close’’ to the median of RBI’s monetary policy goal, should help the policy makers to prioritise growth.
“Unlike the central banks in advanced countries, the RBI is not under pressure to raise repo rates for checking inflation that creates more room for monetary side expansion of demand,” the report said.
India’s economy is set for an accelerated uptick in job creation and demand, backed by strong prospects of a revival in investment, a surge in bank credit and easing of inflation pressures, the report said.
The finance ministry is hopeful of the investment cycle picking up, which should push up growth.
Reserve Bank governor Shaktikanta Das on Wednesday ruled out upside risks to the 5.3 per cent inflation forecast for the current fiscal, saying the recent cut in excise duty on diesel and petrol as well as better management of supply-side issues on the food front have contained inflationary expectations.
These measures are significantly positive for inflation management, he said at an event in Mumbai.
However, the governor warned that core inflation still remains elevated and needs to be addressed.