NEW DELHI: Even as experts question the government’s budget assumption of 3-3.5% inflation in 2022-23 amid rising crude prices and overall global inflation, the finance ministry believes the inflation would come down from the current levels in the next financial year.
In its monthly economic review, the department of economic affairs, ministry of finance, note: “Global inflation and energy prices are likely to be influential in determining India’s rate of inflation and government expects it to decline to eventually obtain a GDP deflator of 3.0-3.5% assumed in the Budget 2022-23.”
A finance ministry official told TNIE that the GDP deflator is 2/3rd of the Wholesale Price Index (WPI), and since the WPI has remained in double-digit in the current financial year, the government expects it to come down in the next financial year. The official says that high base effect would come into picture in 2022-23.
GDP deflator, which indicates inflation in the economy, is a mix of both wholesale and retail inflation.
The WPI has remained in double-digit in the last 10 months of 2021-22. In January the WPI grew at 12.96%. CPI Inflation, however, is expected to be 5.3% in 2021-22. The RBI has also predicted 4.5% retail inflation in 2022-23.
The budget has estimated 11.1% nominal GDP growth rate while Economic Survey Report has estimated 8-8.5% real GDP growth in 2022-23, therefore, indicating that the GDP deflator would be around 2.5-3%. Many analysts had questioned the government’s low inflation estimate.
Meanwhile, the monthly economic review says that the fixed investment rate in India’s economy is poised to rise further from its 2021-22 ratio of 29.6% of GDP thanks to higher capital expenditure planned in 2022-23.
The ministry says that the capex component in the budget 2022-23 will be financed by both domestic and foreign savings within the fiscal deficit of 6.4% of GDP budgeted for central government and an additional 4% capped for the state governments.
WPI in double-digit
A finance ministry official told TNIE that the GDP deflator is 2/3rd of the Wholesale Price Index (WPI), and since the WPI has remained in double-digit in the current financial year, the government expects it to come down in the next financial year. The high base effect would come into picture in 2022-23.