Economic Survey 2022-23: Inflation in India "did not creep" too far above RBI's target level

The Economic Survey 2022-23 says that India’s inflation rate did not creep too far above the Reserve Bank of India's (RBI)  tolerance range compared to several advanced nations and regions. 

The RBI has projected the headline inflation in the country to remain at 6.8% in FY23, which is outside its target range of 6%. The country’s retail inflation eased further to a one-year low of 5.72% in December 2022, down from 5.88% in November 2022, thus staying below the RBI’s upper threshold of 6% for the second month in a row. 

"So far, India has reinforced the country's belief in its economic resilience as it has withstood the challenge of mitigating external imbalances caused by the Russian-Ukraine conflict without losing growth momentum in the process. India’s stock markets had a positive return in CY22, unfazed by withdrawals by foreign portfolio investors. India’s inflation rate did not creep too far above its tolerance range compared to several advanced nations and regions," the survey says. 

The survey attributes the measures taken by the government and RBI, , along with the easing of global commodity prices, as the reason for the retail inflation to be below the RBI upper tolerance range in November 2022. 

According to the survey, in FY23, retail inflation was mainly driven by higher food inflation, while core inflation stayed at a moderate level. Food inflation ranged between 4.2% and 8.6% during April and December 2022, while the core inflation rate stayed at around 6% except in April 2022. 

"It is not wishful thinking that 2023 will show less macroeconomic volatility than its preceding financial year. Both CPI-C and WPI have fallen below 6% (which is the RBI tolerance limit for the former) and are on the descending slope of the surge that hit the economy in the first half of the current fiscal. International crude oil prices, the principal drivers of inflation this financial year, have returned to normal levels and so have prices of other major commodities,” the survey says. 

RBI has projected CPI inflation for the Q1 of FY24 at 5.0% and for Q2 of FY24 at 5.4% on the assumption of a normal monsoon.

Meanwhile, RBI forecasts elevated domestic prices for cereals and spices in the near term owing to supply shortages. Milk prices are also expected to spike reflecting high feed costs. "In general, climate across the world has become increasingly erratic, further fortifying upside risks to food prices. A lot depends on industrial input prices: they may ease, but on the flip side their delayed pass-through to consumer prices may contribute to the stickiness of core inflation," the survey says.