NEW DELHI: India’s slow but sure economic rebound faces rising inflation as the next big hurdle to attain faster recovery.
A further surge in global commodity prices may hit consumption and have serious implications for India’s economy which is still struggling to come out of the Covid-19 impact, according to ratings agency Ind-Ra said.
“A higher retail inflation not accompanied by a commensurate increase in wage growth will adversely impact the consumpt ion demand and in turn investment revival in the economy,” it said, adding though a spike in global agricultural commodity prices could benefit India, it may not move the needle favourably.
That’s because India, despite the world’s biggest exporter of Basmati rice, exported just $6.59 billion worth of cereals and imported vegetable oil and pulses worth $9.66 billion and $1.44 billion, respectively, in FY20.
The rating agency added that while exports suffered, India’s import bill on oil, coal and nonferrous metals was $129.86 billion, $22.45 billion and $13.14 billion, respectively, despite cutting on petrol imports.
According to the agency, a faster-than-expected recovery in demand, the stimulus measures announced by the US, the roll out of Covid-19 vaccine and ultra-low interest rates are fuelling the surge in commodity prices.
Consequently, energy commodity prices over the past six months have increased by 55.4 per cent, the increase innon - energy commodity prices is 19.3 per cent.
Among the major non-energy subgroups, agricultural commodities rose 16 per cent, fertilisers 30.2 per cent and metals and minerals by 25.1 per cent. Additionally, Ind-Ra warned against a commodity super cycle.
This phenomenon occurs as a “long-term, above-trend movement in a wide range of base material prices, driven by a structural change in demand”.
For instance, the last such super cycle started in early 2000 and lasted till the global financial crisis of 2008.