Winning Bizness Desk
Mumbai. The bumper agricultural production from normal monsoon and the increase in interest rates by the Reserve Bank of India (RBI) can provide relief on the inflation front. Economists have expressed this opinion. Inflation is at its highest level in many years as food items and fuel become costlier. Although the government can also control inflation with fiscal measures such as further reducing excise duty on petroleum products, experts believe that the emphasis will be on monetary policy to control prices. Retail inflation rose by 7.04 per cent year-on-year in May, as against 7.79 per cent in April. On the other hand, wholesale inflation rose to a record high of 15.88 per cent in May.
TCS suffered the most
Three-fourth of the price increase is coming from food items and it is expected to get relief due to normal monsoon. He said that the Reserve Bank has already increased the key policy rate repo by 0.90 percent and it can be increased by 0.80 percent in the coming time.
Agricultural production will increase
Major companies have already announced reduction in edible oil prices. S&P Global Ratings Economist Vishruta Rana said global commodity prices are a major driving factor for the rise in inflation and food prices will further depend on the monsoon. A better monsoon will increase agricultural production and keep prices in check.
Possible hike in interest rates
"There are some additional policy options like lower excise duty, lower value-added tax, or direct subsidy on agricultural produce, but the emphasis is likely to be on monetary policy for the time being," Rana told PTI. We expect a further increase of 0.75 per cent in policy rates going forward.
Supply chain's big role in inflation
Sunil Sinha, chief economist, India Ratings and Research, said that being a net importer of goods, India cannot do much on this front. However, import duty can be cut to reduce the impact. However, it has its limits. Deloitte India economist Rumki Mazumdar said inflation is driven by the supply chain both globally and domestically. EY India's chief policy advisor DK Srivastava said fiscal policies can be effective in reducing supply constraints.