Lower energy, food and fertiliser prices bodes “benign” inflation: Economic Survey

The Economic Survey for 2023-24 described the inflationary situation in India as better than the global average, adding that the short-term inflation outlook for country appeared “benign”.

The Economic Survey, presented by finance minister Nirmala Sitharaman in Parliament on Monday, observed that global prices, including that of natural gas and fertilizers, are likely to ease going ahead, which it said bodes well for the inflationary situation in the country.

Citing data from the World Bank, the survey said the commodity price index may witness a 3% decline in 2024 and a 4% decrease in 2025, mainly driven by lower energy, food and fertiliser prices.

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“The energy price index is expected to reduce due to significant declines in coal and natural gas prices this year. Fertiliser prices are likely to weaken but remain above 2015-2019 levels due to strong demand and export restrictions,” the Economic Survey said.

“Base metal prices are projected to rise, reflecting increased global industrial activity and clean energy production. In general, the current downward movement in the prices of commodities imported by India is a positive for the domestic inflation outlook,” it added.

Increase production of edible oils, pulses

The Economic Survey, presented a day ahead of the Union Budget for 2024-25, also outlined a few recommendations for long-term price stability, mainly focusing on food.

Food inflation based on the consumer food price index expanded 9.36% year-on-year in June, up from an 8.69% increase in May.

The survey noted that domestic consumption of edible oils has been increasing faster than production, leading to increased import dependence. 

To address this, the survey said it was important to focus efforts on increasing domestic production of major oilseeds such as sunflower, rapeseed and mustard, and explore the potential of non-conventional oils such as rice bran oil and corn oil.

It also suggested expanding the scope of the National Mission on Edible Oils beyond palm oil to other major oilseeds.

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As for pulses, the survey noted that production was concentrated in a few states and districts, making the food staple vulnerable to biotic and abiotic stresses. More efforts are needed to expand the area under pulses, particularly lentils, tur, and urad, in more districts and rice-fallow areas, it said.

"It is also worth considering promoting the summer cultivation of urad and moong in areas with assured irrigation facilities," it said.

Prudent measures to tame prices

The survey also outlined measures by both the Union government and the Reserve Bank of India to inflationary pressure, including an increase in the repo rate, lower cooking gas prices, and a price cut of around ₹2 per liter in petrol and diesel announced by oil marketing companies ahead of the general election earlier this year.

"Low fuel and core inflation ensured a downward trajectory for headline inflation, despite volatility in food prices in FY24. Thus, moderation in inflation was largely the result of prudent administrative measures and monetary policies implemented during the post-pandemic economic recovery phase," the Economic Survey said.

India’s retail inflation hit 5.09% in June, rising from a 12-month low of 4.75% in May.

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