PremiumThe threat of inflation is fast worsening. Crude oil prices have risen past $110 per barrel, and with no end to the Ukraine crisis in sight, RBI may need to move decisively towards policy tightening, even as the 2022-23 budget’s core assumptions weaken
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Recent data readings offer comfort on the health of India’s economy. The manufacturing purchasing managers’ index released on Wednesday edged higher to 54.9, as recorded in February, from 54 in January. More than this rise, though, the fact that it’s staying well above the 50 mark, which separates expansion from contraction, makes for optimism on this major sector. Also, data released a day earlier showed India’s goods and services tax mop-up above ₹1.3 trillion for the fifth successive month in February.
These numbers suggest the third covid wave has done our economy only limited harm. With infection cases now back in control, supply chains should function smoother and help commercial activity gain pace. That the Reserve Bank of India has chosen to stay dovish to the surprise of many should keep credit conditions supportive. But the threat of inflation is fast worsening. Crude oil prices have risen past $110 per barrel, and with no end to the Ukraine crisis in sight, our central bank may need to move decisively towards policy tightening, even as the 2022-23 budget’s core assumptions weaken. With too many economic variables up in the air, uncertainty stares at us.
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