Last updated: February 26, 2023, 3:18 PM IST
Jayanth R Varma, Member, Monetary Policy Committee.
Jayanth R Varma said he expects inflation in India to remain high in 2022-23 but to fall significantly in 2023-24
India’s economic growth appears “very fragile” and may fall short of what the country needs to meet the aspirations of its growing workforce, RBI Monetary Policy Committee (MPC) member Jayanth R Varma said on Sunday. In India, Varma said he expects inflation to remain high in 2022-23, but to fall significantly in 2023-24.
“However, growth appears very fragile and monetary tightening is depressing demand,” he told PTI.
Elaborating further, he said rising EMI payments are increasing pressure on household budgets and dampening spending, and exports are struggling in the face of global factors. Varma noted that high interest rates are hampering private capital investment, but said the government is engaged in fiscal consolidation, reducing support to the economy from this source.
“Because of all these factors, I fear that growth will fall short of what we need to meet the aspirations of our growing workforce given our demographic context and income levels,” he said.
The Reserve Bank of India (RBI) has forecast India’s economic growth at 6.4 percent for 2023-2024. Gross domestic product (GDP) growth is projected to reach 7 percent in 2022-23, according to the National Statistical Bureau’s (NSO) first preliminary estimate.
The 2022-2023 Economic Survey projected real GDP growth of 6.5 percent in real terms for the next financial year. Varma, currently a professor at the Indian Institute of Management in Ahmedabad, said he sees global inflationary pressures ease in the coming months as supply shocks from the pandemic and war in Ukraine gradually subside.
“The world is learning to live with the war,” he said, adding that at the same time monetary tightening is jeopardizing global growth.
Responding to a question about high inflation, Varma said 2022-23 is a year of high inflation due to several supply shocks and the slowdown in monetary tightening in the second half of 2022-23.
“However, I expect inflation to fall significantly in 2023-2024. I expect a gradual slide that will bring inflation close to target,” he said.
The RBI lowered its consumer price inflation (CPI) forecast from 6.7 percent to 6.5 percent for the current fiscal year. Indian retail inflation was 6.52 percent in January. When asked about the Reserve Bank’s hike in short-term interest rates, Varma said the balance of risk has shifted to growth rather than inflation, and in this context a pause is more appropriate.
Noting that interest rates are high enough for the MPC to wait and see how the situation evolves, he said: “In the unlikely event that inflation remains stubbornly high, further rate hikes may be considered at that point.” The Reserve Bank, which has been raising short-term interest rates since May last year, has cumulatively raised the repo rate by 250 basis points. The repo rate now stands at 6.5 percent.
When asked what the likely impact of warm weather would be on wheat crops and food inflation, Varma said he hopes weather anomalies will prove to be transient and India will have a normal monsoon.
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(This story has not been edited by News18 staff and was published from a syndicated news agency feed)
