Inflation will moderate, to be below 6% in July

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Chief Economic Adviser K V Subramanian has said that headline inflation will be below 6 percent in July but will remain above 5 percent for some time to come. He said that despite some revenue cuts, the government continues with its fiscal year 22 budget, a fiscal deficit target of 6.8 percent of GDP this year.

Speaking at a virtual conference organized by the Industrial Body Physi, Subramanian hoped that tax revenue would perform well. Separately, in an Assocham event, Subramanian said; the epidemic affected some unorganized areas more than others. But for many institutions in this informal sector, pressure is not coming out of their balance sheet. Therefore, once the economy makes a good comeback, these firms gain access to their regular workforce (many migrant workers have not yet returned to work since the second wave of covid and they can increase production immediately.

Subramanian said he had predicted that it would cool down in internal meetings and discussions with the regulator after the release of information on CPI inflation in May. The continuing momentum in this number is determined by the challenges posed by factors such as commodity inflation, he added.

The CEA said in FE21 that the first wave of the pandemic affected inflation as it lasted longer, saw the second wave deliver lockdowns, and did not have a profound impact on inflation.

The RBI has maintained rates to support growth despite rising inflation. However, after the recent data points, there were concerns about price increases. The next monetary policy meeting of the Central Bank will be held on August 4-6.

Recently, Finance Secretary TV Somnathan told the FE that even in the recently announced relief package, the financial expenditure is estimated at around Rs 1.5 lakh crore, taking into account the possibility of revenue surpassing the budget estimate of 6.8% of GDP in 2021-22 and rationalizing the expenditure.

The CEA’s assessment, which echoes Somnath’s vision, discounts the possibility of more significant stimulus or relief packages this financial year. In FY21, the central fiscal deficit was reported at 9.3%, the highest level since 1990-91, actually, 3.5% (budget estimate), announced in the wake of the epidemic thanks to welfare measures, including continuous stimulus packages and money transfers

On June 30, the Ministry of Finance asked 81 ministries/departments or organizations to reduce their spending plans by at least 5 percentage points (PPS) in the September quarter to 25% of business-standard full-year spending. , Given the pressure on government finances.

In addition, the expenditure of most departments have been kept within the available limits of 20% and 25% of the budget estimates for the entire first quarter. According to FE estimates, the move will save the Center up to Rs 1.15 lakh crore in the first half of the current financial year.

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