Frequent food price spikes pose risk to anchoring of inflation expectations: Shaktikanta Das

24 Aug 2023 Evaluate

Expressing some cautiousness over the India’s inflation situation, the Reserve Bank of India (RBI) Governor Shaktikanta Das has said the frequent food price spikes pose a risk to anchoring of inflation expectations, which has been underway since September 2022, and called for timely supply side measures to limit such shocks. He added that vegetable price shocks are short term in nature and the monetary policy can wait for the ‘dissipation’ of the first-round effects of the current spate of shocks. However, he said the RBI will be on guard to ensure that second order effects in the form of generalisation and persistence are not allowed to take hold.

He noted ‘the role of continued and timely supply side interventions assumes criticality in limiting the severity and duration of such shocks’. He also reiterated that the RBI will remain firmly focused on aligning inflation to the target of 4 per cent and the interest rates are likely to stay elevated in the country for long. He said the spike in vegetable prices in July is starting to see a correction, led by tomato prices, pointing out that new arrivals are already softening prices. He also welcomed the ‘proactive supply management’ in the case of onions. He expects an appreciable slowdown in vegetable inflation from September.

On the macroeconomic front, Das said India's financial sector continues to be resilient and healthy but underlined that there is no room to be complacent. Forex reserves of over $600 billion present a strong umbrella against any event like that of a cyclical capital outflows. He added it was this ‘umbrella’ which led to an orderly depreciation of the rupee and ensured that the domestic currency was less impacted when compared to global peers after the start of the Ukraine invasion by Russia.

On the manufacturing front, he said the share of it has remained stagnant at about 18 per cent of GDP and India has the potential to capitalise on emerging areas such as aerospace and defence, low-carbon technologies, electric vehicles and semiconductors. He said improving the labour force participation rate, especially of women, is critical to realise the full potential on the demographics front, and added that there is a need to invest in education, skill development, and healthcare. The time is now ripe for targeted development of startups in high-tech domains such as quantum computing, small modular reactors, AI-based defence equipment, biotechnology, rare earths extraction, battery technology, oceanography and space exploration.

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