Endorsing the Reserve Bank of India’s view that inflation tolerance band of 4 (+/-2)% ought to be retained, Niti Aayog vice-chairman Rajiv Kumar mentioned the band serves the goal and ought to be retained for the next 5 years. “I can’t see any significant changes in the macro economic situation that would warrant any major changes in inflation target that we have,” Kumar told FE.
The RBI’s report on currency and finance for 2020-21 released on February 26 noted that the present inflation tolerance band ought to be retained for the next 5 years. “The international experience suggests that inflation targeting EMEs (emerging market economies) have either lowered their inflation targets or kept their targets unchanged over time. In India, however, the repetitive incidence of supply shocks, still elevated inflation expectations and projection errors necessitate persevering with the current numerical framework for the target and tolerance band for inflation for the next five years,” mentioned the report. A disclaimer in the document stated that the report represents the views of the central bank executives who authored it, and not that of the RBI.
AS FE reported lately, lots of economists have cautioned against a dilution of the extant inflation target, particularly offered the elevated fiscal deficit projections till FY26. Some even pitched for getting a closer look at core inflation although continuing to target the headline retail inflation in the 4 (+/-2)% band.
Over the October 2016 to March 2020 period, headline inflation averaged 3.9%. Trend inflation estimates stood in the variety of 3.8 – 4.3% for the versatile inflation targeting (Match) period.
The enactment of the inflation targeting framework was completed on May 14, 2016. As per the pact in between the RBI and finance ministry, this inflation target is applicable for the period from August 5, 2016 to March 31, 2021. If the MPC fails to preserve price tag rise in this band for 3 consecutive quarters, the RBI governor would have to create to Parliament as to why it failed and what corrective action required to reach the target.
On financial revival, Kumar mentioned the country’s genuine gross domestic solution (GDP) may possibly contract 7.5-8% in FY21 as Q4 GDP development may possibly not be as robust as anticipated. “Q4FY21 GDP growth will be positive but may not be robust as thought to be because consumption demand seems beginning to plateau,” he mentioned. For FY22, Kumar expects 10-11% genuine GDP development and about 15% nominal GDP development.
India’s economy regained rather a lot of lost steam in the December quarter, to register a flat development of .4% following two consecutive quarters of deep contraction triggered by the pandemic, according to official information. In FY21, the GDP would contract by 8%, the sharpest drop in recorded history, as per the second advance estimate released lately the contraction was previously observed at 7.7%.
The second advance estimate for FY21 indicates an improvement in GVA development to 2.5% in the fourth quarter. But it projected the GDP to slip back into a 1.1% contraction in the March quarter, due to back-ended release of subsidies by the government.
On the recommendation by a Niti Aayog panel to reform the National Food Securities Act (NFSA) 2013 to decrease the coverage of rural and urban population from 75% and 50% respectively to 60% and 40% to reduce down on burgeoning meals subsidies, Kumar mentioned such a move could not be advisable at the moment as lots of people today could have have suffered earnings loss and employment loss due to Covid-19. “I think it’s a work in progress,” he mentioned.