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RBI Inflation Target Credible, Supply Capacity to Curb Inflation: S&P

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By Rediff Money Desk, New Delhi   Nov 13, 2024 16:59

S&P Global Ratings says India's expanding supply capacity will help contain inflationary pressure, supporting the RBI's inflation target. The report also highlights the importance of consumption and upskilling the workforce for sustainable growth.
RBI Inflation Target Credible, Supply Capacity to Curb Inflation: S&P
Illustration: Uttam Ghosh/Rediff.com
New Delhi, Nov 13 (PTI) S&P Global Ratings on Wednesday said supply capacity in India is continuing to expand pretty quickly which will help contain inflationary pressure.

S&P Senior Economist Asia Pacific Vishrut Rana said the central bank's monetary policy and inflation target remains credible and the Reserve Bank of India (RBI) should be able to anchor inflationary expectations. "That remains a manageable challenge," he said.

India's retail inflation soared to a 14-month high of 6.21 per cent in October --above the RBI's tolerance band, mainly on account of rising food prices. It was 5.49 per cent in September.

"... As long as economies' supplies capacity continues to expand pretty quickly which is happening in India at the moment with emphasis on manufacturing infrastructure, etc, we expect inflationary pressure should be contained," Rana said at the Asia-Pacific Credit Outlook 2025 conference.

The RBI, which is mandated by the government to contain inflation at 4 per cent (+/- 2 per cent) has projected retail inflation to be 4.5 per cent in the current fiscal year.

"For policymakers and households to balance (consumption and sustainable growth) is to making sure that everyone spends within the means and that can increase savings," Rana said.

He said consumption is a major component for the Indian economy, with private consumption accounting for more than 55 per cent of the overall growth.

"We do see a strong consumption-driven growth outlook for economy. Overall, infrastructure is another component of growth. Urban consumption has been the key driver of growth over the past couple of years," Rana added.

Indian economy is very heavily domestically oriented, he said, adding that about 85 pc of the Indian economy relies on domestic demand, meaning the consumer story is going to drive growth going forward.

Efforts to support agriculture productivity are going to be key in maintaining the momentum of consumption going forward, he said.

Rana further said there is a need to upskill workforce as the focus is shifting to artificial intelligence and digitalisation.

"One issue has been propping up, and we hear about increasingly, is how the rise of artificial intelligence is creating a very difficult labour market for jobs entrants and this is a key challenge for economy to resolve going forward. And policy will have a role to play in upskilling workforce, and tech transition," Rana added.
Source: PTI
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