Economic Survey 2023 | Government expects inflation to cool off but slowly

Venkatramanan Anantha Nageswaran, the Chief Economic Advisor to the government of India,  while presenting the Economic Survey 2023 said that inflation should cool off this year but it will take time as it is too "entrenched".  This in turn might translate to the Reserve Bank of India taking time to reduce lending rates that have been going up since the last year. This is because the CEA expects food inflation to cool off but core inflation to stay sticky.

The Finance Minister tabled the Economic Survey in the Parliament today as the Budget Session kicked off. Interestingly the word, 'inflation' has been mentioned in the Survey 356 times.

The report notes, "Entrenched inflation may prolong the tightening cycle, and therefore, borrowing costs may stay higher for longer"

The country’s retail inflation had crept above the RBI’s tolerance range (4-6 percent) in January 2022. It remained above the target range for ten months before returning to below the upper end of the target range of 6 percent in November.

It is noteworthy that RBI has projected headline inflation at 6.8 percent in for the current financial year (FY23), which is outside its target range.

"In the developed world, inflationary pressures are abating but they are still on the higher side historically and relative to the inflation targets that many countries have adopted," the survey noted.

The Union Budget, also comprising the Railway Budget, will be presented by Finance Minister Nirmala Sitharaman on February 1 (tomorrow). This will be the last full Budget of the Modi-led central government as the next Lok Sabha election is due in April-May of 2024.