Headline inflation would likely come in at below the 6% mark in July itself but could stay at an elevated level of over 5% for some time, chief economic advisor K V Subramanian said on Thursday. Despite pruning some revenue expenditures, the government would stick to its FY22 Budget and the fiscal deficit target of 6.8% of the gross domestic product for the year, he said.
Speaking at a virtual conference organised by industry body Ficci, Subramanian also said tax revenues were expected to perform better.
Separately, at an Assocham event, Subramanian said the pandemic has hit some of the unorganised sectors harder than others. But stress in many of these informal sector entities does not emanate from their balance sheet. So, once the economy stages a smart rebound and these firms get access to their usual work force (many migrant labourers haven’t yet returned to work following the second Covid wave), they can ramp up production immediately.
Right after data for May CPI inflation was out, Subramanian said he had predicted it would cool down in internal meetings and also during “deliberations with the regulator”. The sequential momentum in the number is range-bound despite the challenges posed by factors like commodity price rises, he added.
The CEA said in FY21, inflation was impacted because of the first wave of the pandemic which lasted longer, while the second wave saw distributed lockdowns and did not have a deep impact on inflation.
The RBI has been holding rates to aid growth despite the surge in inflation. However, after the recent data prints, concerns have been expressed over the price rise. The next monetary policy meeting of the central bank will be held during August 4 – 6.
Recently, finance secretary TV Somanathan told FE that even with the relief package announced recently, the fiscal cost of which is estimated at around Rs 1.5 lakh crore, the fiscal deficit target of 6.8% of GDP for 2021-22 would be adhered to, given the possibility of revenue receipts exceeding the Budget estimate and expenditure rationalisation being undertaken.
The CEA’s assessment, which echoes the view of Somanathan, discounts chances of additional substantive stimulus or relief packages through the course of the current financial year. In FY21, the Centre had ended up reporting fiscal deficit of 9.3%, the highest level since 1990-91, as against originally projected 3.5% (Budget estimate), thanks to a series of stimulus packages and welfare measures, including cash transfers announced in the wake of the pandemic.
On June 30, the finance ministry asked 81 ministries/departments or organisations to scale down their expenditure plans for the September quarter by at least 5 percentage points (pps) from the business-as-usual level of 25% of the full-year spending, in view of stress on the government’s finances.
Also, spending by most departments is learnt to have remained within 20% of the full-year Budget estimate in the first quarter, against the available limit of 25%. The moves helped generate savings for the Centre, of up to Rs 1.15 lakh crore in the first half of the current fiscal as per an FE estimate.
– With inputs from PTI