Recovery ‘uneven’, food prices to blame for high inflation: Finance Ministry

‘Revival bumpy, sentiment to improve’

Published - July 09, 2021 11:21 pm IST - NEW DELHI

Foodgrains being unloaded at the Royapuram railway yard in Chennai. Photo : Bijoy Ghosh

Foodgrains being unloaded at the Royapuram railway yard in Chennai. Photo : Bijoy Ghosh

India’s economic recovery after the ebbing of the second COVID-19 wave remains uneven, despite an uptick in several economic indicators through June, the Finance Ministry said on Friday. Consumption sentiment, it added, was likely to improve as recent relief measures announced by the government begin to kick in.

Attributing the spike in retail inflation over the last two years to higher food inflation, the Ministry said that prices were expected to cool in the short term from the 6.3% inflation mark reported in May, due to healthy monsoons, gradually rising Kharif crop sowing and unlocking by States. While this would slow food inflation, and thereby headline inflation, the Ministry said input cost pressures and the global spurt in commodity prices remained major risks.

Consumption sentiment is expected to pick up due to recent measures such as enhanced employment support (through Employees’ Provident Fund subsidies under the Aatmanirbhar Bharat Rozgar Yojana), and targeted support to the urban poor through the credit guarantee scheme for microfinance institutions and the widening of the BharatNet’s digitisation coverage.

Higher highway toll collections, power usage and record UPI transactions suggest ‘India is on the move again’, the Ministry said in its monthly economic review for June. “However, recovery remains uneven with indicators such as port traffic, air traffic, PMI Manufacturing and Services demonstrating lagged revival from the impact of the second wave. Latest industrial production estimates show sequential moderation in growth of... eight core industries at 16.8% [year-on-year] in May 2021, 8% lower than pre-COVID May 2019 level,” it added.

E-way bill generation rose 37.1% in June, compared with May, which augurs well for GST collections in coming months, while resilient tax collections over April and May bodes well for a ‘continued economic recovery’ driven by capital spending, the Department of Economic Affairs noted. On predictions of a third wave, the Ministry said its emergence could be ‘significantly buffered by expanded vaccination and meticulous observance of COVID-appropriate behaviour’.

‘Food’s high weightage’

On inflation trends, it said retail inflation that averaged 5.9% in FY15 ‘fell continuously’ till it reached 3.4% in FY19. From 4.8% in FY20, it surged to 6.2% last year.

“Since the weightage of food in CPI is very high, the impact of food prices on overall CPI inflation is high,” the Ministry reasoned. The government, it said, is taking a variety of measures to rein in food inflation, including the imposition of stock limits and trade restrictions to regulate domestic availability.

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