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In its monthly economic review for June 2023, the Finance Ministry said that the domestic dynamics of the Indian economy continue to be strong. However, negative cross-border spillovers and poor global developments could stop the economy from reaching its expected rapid growth path in the current financial year.
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The ministry also said that even though inflation has “significantly declined” in the June quarter, the recent rise in the prices of “fruits,” “vegetables,” and “pulses and products” due to weather-related problems caused to a successive rise in food inflation in June 2023. This shows that the RBI and the government need to take a “cautious approach.”
Inflation has gone down a lot in India in the June 2023 quarter compared to the same quarter last year, and it is now within the range that the RBI is ready to accept. Since the beginning of the June 2023 quarter, core inflation has also been going down, which shows that prices in the economy as a whole are becoming more stable again.
But the recent rise in the prices of ‘fruits,”vegetables,’ and ‘pulses and goods,’ which was caused by bad weather, has caused food inflation to go up for the month of June 2023. Since inflation has only recently been brought under control and there are still risks of supply-side shocks, such as El Nino, the RBI and the government are still keeping an eye out for the right policy reaction at the right time, according to the review.
The headline retail inflation rate went up to 4.81 percent in June from 4.31 percent in May, according to figures on inflation that came out on July 12. This was mostly because food prices went up sharply from 2.96 percent to 4.49 percent.
According to the ministry, the Reserve Bank of India (RBI) maintains policy rates that are higher than they were a year ago while also keeping a careful eye on the potential impact of global and local shocks on India’s pricing. In some large countries, especially advanced economies (AEs), policy rates are significantly higher in the June 2023 quarter than they were a year before, due to inflation’s considerable volatility.
Even though there are risks of sudden changes in global demand or supply, like the collapse of the Black Sea Grain Deal in July 2023 or the recent rise in the price of Brent crude, and even though core inflation is still high, the central banks continue to take a cautious stance in order to reduce inflation down to their respective targets. The RBI also keeps its policy rates higher than they were a year ago. It does this by keeping a close eye on how global and local shocks might affect prices in India.
On the growth front, the report said that India’s growth momentum from the last quarter of the previous fiscal year is likely to continue in the June 2023 quarter, despite a rise in global uncertainties and a slowdown in global output. High-frequency metrics such as GST collections, PMI, services exports, e-way bills, etc., demonstrate this.
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