The Finance Ministry on Wednesday expected food inflation to ease in coming months, further impacting the headline inflation.
Retail inflation, based on Consumer Price Index (CPI) dipped to a seven-month low of 3.6 per cent in February, showing a decline of 65 basis points in comparison to January. A sharp decline of 222 basis point was observed in food inflation and it came down to 3.75 per cent in February as compared to 5.97 per cent in January. Data for March will be made public on April 14.
Positive outlook
The latest edition of the Monthly Economic Review, prepared by Economic Affairs Department of the Finance Ministry, said that estimates of agricultural production suggest a positive outlook for food inflation. As per the second advance estimates, kharif and rabi foodgrain output is expected to rise by 6.8 per cent and 2.8 per cent, respectively. Among cereals, kharif rice production is projected to grow by 6.6 per cent, while wheat output is expected to reach a record 1154.3 lakh tonnes, marking a 1.9 per cent increase.
“Pressure on food inflation and, thereby, headline inflation is easing, but the trajectory of edible oil prices could pose a risk in the near term.” the report said. The month-on-month momentum in the food inflation rate stood at (-)2 per cent in February, signalling a favourable trend for the months ahead. “The continued implementation of the Bharat Brand scheme is also expected to keep food inflation under control,” it said.
Private investment
The Ministry also made a strong case for increasing private investment, asserting that it can help the country overcome risks to growth emanating from external factors. The report emphasised that the private sector should draw comfort from resilience of the Indian economy and its steady growth outlook.
“It is essential that the industry recognises the mutual endogeneity of its investment spending and consumption demand,” it said.
Pointing out that consumption is expected to get a leg-up with relief in income tax and reduction in policy rate by the RBI, the report said, the private sector should pick up signals from these steps and start making investment towards capacity expansion.
Trade risks
The Ministry also raised concerns about trade risks faced by India and other countries due to tariff-related developments, indicating that the trade outlook for 2025 remains uncertain. Global trade continues to be affected by uncertainty in the policy environment. The Global Trade Policy Uncertainty Index rose to a record high of 237.4 in Q4 2024. Tariff-related developments in multiple countries have heightened trade-related risks, affecting investment and trade flows globally,” it said.
“Geopolitical tensions, increasing uncertainty around trade policies, volatility in international commodity prices and the financial market pose significant risks to the outlook for growth next year,” it said.
