Inflation Not High Enough to Deter Private Consumption: Economic Survey

The survey said this despite inflation remaining above the central bank's target range of 2% to 6% in 2022-23.

New Delhi: India on Tuesday, January 31, forecast its economy will grow 6% to 6.8% in the financial year starting on April 1, down from 7% projected for the current year, as a global slowdown is likely to hurt exports.

The Economic Survey, tabled by finance minister Nirmala Sitharaman in parliament ahead of the annual budget on February 1, is mainly the government’s review of how the economy fared in the past year.

The survey also said that inflation is neither too high to deter private consumption, nor so low as to weaken inducement to invest. The survey said this despite inflation remaining above the central bank’s target range of 2% to 6% in 2022-23.

Although consumer prices fell to a one-year-low of 5.72% in December, rural areas reported higher retail inflation than urban areas in the month, data showed.

The survey said that ‘entrenched inflation’ may prolong the tightening cycle, and therefore, borrowing costs may stay higher for longer.

“In such a scenario, global economy may be characterised by low growth in FY24,” it said.

Also read: Five Issues That Are Hurting the Indian Economy

According to the Indian Express, it also mentioned that the current account deficit may continue to widen as global commodity prices remain elevated and that the Rupee may come under pressure.

Separately, citing the Housing Price Index (HPI) monitored by the National Housing Bank, the survey said that 46 cities registered an increase in housing prices on an annual basis. All of the eight major metros of the country witnessed an annual increase in the index, the Financial Express reported.

“RBI forecasts elevated domestic prices for cereals and spices in the near term owing to supply shortages. Milk prices are also expected to spike reflecting high feed costs. In general, climate across the world has become increasingly erratic, further fortifying upside risks to food prices,” it said.

It also added that bank credit growth will remain brisk in the coming financial year, and that benign inflation and moderate credit cost will impact bank credit.