India Sees Inflation Abating Soon After Deploying Its ‘Toolkit’

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India’s inflation should abate in the coming months as policymakers are taking every possible step to cool down soaring prices, according to a top Finance Ministry official.

“I am very confident that it is a temporary spike and will not sustain,” Finance Secretary TV Somanathan said in an interview in New Delhi Wednesday. “Every instrument in the toolkit is being used to reduce inflation. We will take a medium term view on the future steps.”

The Reserve Bank of India and Prime Minister Narendra Modi’s government are showing increased urgency to tame prices after retail inflation hit a 15-month high in July. Food inflation, which accounts for nearly half of the overall consumer price basket, quickened to 11.51%, registering its highest level since April 2020.

Prices of onions and tomatoes, key ingredients of Indian meals, are critical in the cost-sensitive nation where political parties have lost elections for failing to control inflation. Modi last week vowed to take more inflation-busting measures as he seeks a rare third term in national elections due next year.

India has already banned exports of some rice varieties, curbed shipments of wheat and sugar, and restricted stockpiling of some crops. The nation is also considering abolishing a 40% import levy on wheat and selling tomatoes and grains from state reserves to improve supplies.

“There are supply constraints but they are not severe,” Somanathan said. Price gains will soon come within or near the central bank’s 2%-6% target range, he added.

Monsoon rains, that water more than half of India’s farmlands from June to September, have remained 7% below normal so far, threatening to boost prices further. The likely occurrence of El-Nino weather pattern, that brings hotter and drier conditions, may also hurt crop sowing and rural economy.

RBI Governor Shaktikanta Das on Wednesday said though core inflation — which strips out volatile food and fuel prices — was still elevated, food prices may start coming down from September. Inflation concerns have made economists push rate cut bets to later next year as growth remains resilient.

Data due next week is likely to show India’s economy probably expanded at the fastest pace in four quarters riding on strong services sector growth, and a recent pickup in manufacturing activities.

Capital expenditure trends look healthy and private investment is expected to pick up pace, Somanathan said. He is also confident of meeting the fiscal deficit target of 5.9% of the gross domestic product for the year ending March 2024.

“Robust tax, non-tax collections will help meet the spending requirement and make up for shortfall in disinvestment proceeds,” Somanathan said. “As of now we don’t see any deviation for the fiscal deficit.”

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