Heatwaves, El Nino may drive inflation going forward: Finance Ministry report

The report said inflation will moderate in FY24 compared to FY23 and is likely to remain in the range of 5-6%, with risks evenly balanced

Rituraj Baruah
Published20 Mar 2023, 09:32 PM IST
The report noted that falling international commodity prices and government measures helped ease inflationary pressures in February 2023.
The report noted that falling international commodity prices and government measures helped ease inflationary pressures in February 2023.

India’s inflation rate may be driven by heatwaves and the possibility of an El Nino weather phenomenon among other factors, said the monthly economic review of the finance ministry.

The report for February 2023 released by the Department of Economic Affairs (DEA) on Monday cited forecasts by international agencies and said inflation will moderate in FY24 compared to FY23 and is likely to remain in the range of 5-6%, with risks evenly balanced.

“Going forward, the inflation trajectory will likely be determined by extreme weather conditions like heatwaves and the possibility of an El Nino year, volatility in international commodity prices and pass-through of input costs to output prices,” it said.

Of late, projections have been made that there are chances of an El Nino developing in the second half of 2023. El Nino is usually linked with poor monsoon performance, with several droughts in the country having happened in El Nino years.

The report, however, noted that falling international commodity prices and government measures helped ease inflationary pressures in February 2023. 

It noted that with WPI inflation declining to a 25-month low, its transmission to CPI inflation is soon expected. India’s retail inflation for February decreased to 6.44% in February as against 6.52% in January 2023. The wholesale price index (WPI)-based inflation eased to 3.85% in February on an annual basis from 4.73% in January.

On the growth front, the report said that the Q3 estimate of real GDP in FY23 reflects “the sustenance of sequential growth momentum in the economy”. India’s real GDP growth in Q3 of FY23, estimated on the Q3 base of FY22, has come in at 4.4%.

The report said the fact that the growth momentum has sustained is a reaffirmation of the ability of the Indian economy to grow on the strength of its domestic demand amid slowing global output. It added that on the supply side, broad-based growth has been supported by a rise in rabi sowing in the recent cropping season and the continuous opening of the contact-intensive services sector. 

“On the demand side, the buoyant growth has been sustained by private final consumption expenditure, which continues to benefit from the release of pent-up demand,“ it said.

At 2011-12 prices, the gross fixed capital formation has risen from 34 trillion in the first nine months of FY 22 to 39 trillion in the corresponding period of FY23 following the government’s increasing focus on capital expenditure.

The ministry in its report said that the macroeconomic stability of the country is likely to receive a further boost in FY23 as the current account deficit is set to narrow from the year-beginning estimates. 

“The jump in net service exports over the previous year is a critical development as India increases its market share in both IT and non-IT services, whose demand has been triggered by the pandemic. Imports are also less costly now with the easing of global commodity prices,” it said.

“With a manageable current account deficit and a growth rate highest among the major economies in FY23, the Indian economy has shown a new-found resilience in sailing through the turbulence caused by the pandemic and geopolitical stress,” the report added.

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First Published:20 Mar 2023, 09:32 PM IST
HomeEconomyHeatwaves, El Nino may drive inflation going forward: Finance Ministry report

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