New Delhi: This year’s below-normal monsoon rainfall may spark challenges for inflation and economic growth in rural areas over the medium term.
Currently, India is facing an overall 8 percent monsoon rainfall deficit, which may impact sowing and harvesting seasons of Rabi crops, pressuring consumer prices and squeezing the agriculture sector, Rahul Bajoria, Chief India Economist, Barclay’s Plc was quoted as saying in media reports on Monday.
“I think it is more of a slightly medium-term impact that kicks in, where the government will have to think about mitigating steps for rural incomes, which tend to depend on farming activity quite a bit,” Bajoria said.
Inflation soared above the Reserve Bank of India (RBI)’s 2 percent to 6 percent target range in May and June before slipping back, while the central bank has maintained its lower-for-longer stance to nurse the economy’s recovery from the pandemic.
The RBI sees inflation at 5.7 percent in the current financial year, until March 2022, viewing the current surge in inflation as temporary.
To minimize the impact of rainfall deficit, the Centre may have to scale up relief measures such as rations and cash transfers, he said.
“They may also have to think from a geographical standpoint, which is the crops getting more impacted and take mitigating steps to try and contain inflation,” Bajoria said.
Clothing inflation, for instance, might pick up because of low cotton harvests.
Bajoria said the central bank is slowly moving toward normalization, which will require “securing growth outlook,” he said.
The central bank has been factoring in elevated inflation in its policy stance, but it is not enough to trigger normalization.
“The priority will still be to try and see whether the uncertainty around growth forecast has dissipated or not because inflation has been elevated for the last 18 months.”
(VP)