Inflation Current Affairs - 2019

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Ind-Ra lowers India’s GDP growth forecast in 2019-20 to 6.1% from 6.7% in August 2019

India Ratings and Research (Ind-Ra), a part of Fitch group has lowered India’s gross domestic product (GDP) forecast for financial year (FY) 2019-20 to 6.1%. This was second downgrade in the last two months. Earlier in August 2019, Ind-Ra had revised GDP growth estimate to 6.7% from its earlier forecast of 7.3%. It has cited slowdown in both rural and urban consumption demand growth as one of the key reasons for the downward revision of GDP in its August 2019 forecast.

Ind-Ra Projections

Growth Forecast: GDP growth in the first half of FY 2019-20 to be 5.2% and forecasts it to recover to 6.9% in 2HFY20, mainly on account of the base effect.

Government Measures: The recent measures announced by government to arrest economic slowdown are likely to support growth only in medium-to-long term. Most of the measures announced by government are essentially supply-side response to revive growth.

Bigger challenges faced by economy: It is from demand side as consumption demand has collapsed and private corporate investment is not forthcoming.

Way Forward: There is need is to take measures that will enhance disposable income and put additional money in the hands of rural and urban households. Government-initiated spend on rural infrastructure activities will help to generate large-scale employment that could add/stimulate consumption demand.

Key drivers of inflation in India: They are food and crude oil prices and they stand favourable/benign currently. They are likely to remain the same during the remainder of the financial year.

Fiscal deficit: It has been budgeted at 3.3% of GDP. It could increase to 3.6% of GDP in FY20. Additionally, current account deficit is expected to decline to 1.8% of GDP in FY20 from 2.1% of GDP in FY19, aided by softer crude oil prices. In terms of the domestic currency, Indian rupee will average 70.86 against the dollar in FY20.

5% additional Dearness Allowance approved

Additional installment of Dearness Allowance and Dearness Relief was approved by the Union Cabinet on October 9, 2019. According to the approval, the central government employees are provided with a increase of 5%. Currently it is 12% of the basic pay. Similarly, the Dearness Relief to the pensioners was increased to 5% while its current rate is 12% of the pension.

The increase is being done to compensate the price rise. The increase is based on the recommendations 7th Pay commission

Analysis

The RBI recently has been cutting off the repo rate. It now stands at 5.15% in the last bi – monthly policy review. With this, the inflation is predicted to increase. The increase of the allowances by the cabinet is a precautionary step. The current inflation is around 3% which lies within the boundaries of target inflation set by RBI.

The DA and DR paid to the Central Government employees and pensioners are to adjust the cost of living and to protect their basic pay. Generally, it is revised twice a year.