Growth, inflation risks from rising energy prices: Finance Ministry

Elevated prices of energy and other commodities and supply side disruptions due to Russia-Ukraine conflict pose a challenge to the growth trajectory and upside risks to inflation, the Finance Ministry said in its monthly economic review report for March, released on Thursday. The movement in oil prices is expected to dominate inflationary trends in the coming months, it said, adding the government has been taking steps to diversify import sources which includes buying cheaper crude oil from Russia and diversifying energy sources beyond traditional hydrocarbons.

GatiShakti and Production-Linked Incentive Schemes will offset global headwinds and drive investment, resulting in high post-recovery growth for the Indian economy, it said. “PLI schemes in the 14 sectors will increase the competitiveness of the manufacturing sectors leveraging their untapped potential to achieve higher export growth and fulfill the vision of Atmanirbhar Bharat,” the report said.

Heightened commodity prices, along with supply chain disruptions caused by geopolitical tensions between Russia and Ukraine pose a challenge to global economic activity, it said, adding that the magnitude of the impact would depend on the persistence of high prices. The Ministry said domestic economic momentum in government capital expenditure, rise in GST mop-up and import of capital goods “offer comfort that the impact on the economy may turn out to be tolerable”.

The dated Brent crude oil price, which forms the bulk of Indian crude oil basket, has hovered around $105-106 a barrel since April 1, after having risen above $135 in the first-second week of March, from around $95 just before the crisis, it said. “Affordability is desired as even the present level of international crude price, should it persist for a long time, may come in the way of India achieving a real economic growth rate north of 8 per cent in FY23,” it said.

Improvement in labour market indicators such as labour force participation, reduction in unemployment rate and highest net addition in EPF subscribers since April 2019 shows revival in employment outlook, the report said. net EPF subscribers reaching 15.3 lakh in January, 37.4 per cent higher than in the corresponding period of the previous year.

PMI services has also stayed in the expansionary zone continuously for eight months on the back of e-toll collection, e-Way Bill, railway freight and air cargo, among others, complementing the robust manufacturing sector, it said.

GST collections breached Rs 1.4 lakh crore in March 2022, heralding the onset of post-recovery growth, it said. Private consumption may be beginning to perk up, the report noted.

Observing that the capital investment by the central government for the period of April 2021 to February 2022 has surpassed the levels in the corresponding periods of pandemic and pre-pandemic years, it said, adding there are nascent signs that rising public capex may be crowding in private investments as well.


Ukraine war weighs

Heightened commodity prices, along with supply chain disruptions caused by geopolitical tensions between Russia and Ukraine pose a challenge to global economic activity.

The report said that the pandemic still casts a shadow over global economic prospects in 2022, taking note of the ongoing struggle to contain the infections in Shanghai in China. It, however, said that since Delhi and Maharashtra have now made masks optional, it reflects their belief that the pandemic is under control. The hope is that any new variant such as Omicron XE would not pose a serious threat to the economic recovery, it said.

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