Despite the challenges posed by global demand-supply imbalances due to ongoing geopolitical tensions, India’s inflation rate was 1.4 percentage points below the global average in 2023, as per the economic survey released by the Centre. India successfully managed to keep inflation at 5.4 per cent in FY24. Core inflation at 4.3 per cent in FY24 was the lowest since the pandemic. However, the food inflation increased from 6.6 per cent in FY23 to 7.5 per cent in FY24, the survey revealed.
In 2023, India's inflation rate was within its target range of 2 to 6 per cent. Compared to advanced economies like the USA, Germany, and France, India had one of the lowest deviations from its inflation target in the triennial average inflation from 2021-2023. India deviated 1.8 per cent from the target, while Russia and the United Kingdom deviated by 4.8 per cent and 4.3 per cent, respectively.
India’s inflation rate in 2023 (5.4 per cent) was lower than the world average (6.8 per cent) and emerging markets and developing economies (EMDEs) (8.3 per cent). However, the advanced economies maintained a lower inflation rate of 4.6 per cent. In India, the inflation rate was less than 6 per cent in 29 out of the 36 States and Union Territories.
In FY23, Consumer Price Index (CPI) based retail inflation in India was primarily influenced by higher food inflation, while core inflation remained moderate. Externally, the Russia-Ukraine war led to price pressures, while domestically, excessive heat in the summer and uneven rainfall put pressure on food prices.
However, since May 2022, monetary policy focused on absorbing excess liquidity in the system by increasing the policy repo rate by 250 basis points from May 2022 to February 2023. Thereafter, the policy rate was kept unchanged by focusing on the gradual withdrawal of accommodation. Consequently, the persistent and sticky core inflation observed in FY23 declined to 3.1 per cent in June 2024, the survey stated. As per the recent data released by the Ministry of Statistics and Programme Implementation (MoSPI), the retail inflation rate was 5.1 per cent in June 2024.
In FY23 and FY24, the agriculture sector was affected by extreme weather events, lower reservoir levels, and damaged crops that adversely affected farm output and food prices. So, food inflation based on the Consumer Food Price Index (CFPI) increased from 3.8 per cent in FY22 to 6.6 per cent in FY23 and further to 7.5 per cent in FY24, the survey revealed.
Aditi Nayar, Chief Economist and Research and Outreach Head at Icra emphasised the role of the Centre in managing the inflation over the medium term. She said, “The Economic Survey implicitly stresses that in the medium term, growth needs to be supported by the private corporate sector as well as the state governments. Managing inflation, on the other hand, is not just the prerogative of the RBI and its MPC, and would require active intervention by the Centre, especially in the arena of food price management. The realisation of both these paradigms is crucial to ensure an optimal growth-inflation mix over the medium term.”
The Reserve Bank of India (RBI) and the International Monetary Fund (IMF) have projected that India's consumer price inflation will progressively align towards the inflation target in FY26. The RBI expects headline inflation to be 4.5 per cent in FY25 and 4.1 per cent in FY26, while the IMF has projected an inflation rate of 4.6 per cent in 2024 and 4.2 per cent in 2025 for India.
The World Bank has projected a three per cent decline in the commodity price index in 2024 and a four per cent decrease in 2025, mainly driven by lower energy, food and fertiliser prices. The current downward movement in the prices of commodities imported by India is a positive for the domestic inflation outlook, as per the survey.
