In May and June, India’s Consumer Price Index (CPI) was 6.3% and 6.26%, which have exceeded the upper limit of 6% set by the Bank of India for two consecutive months. At the same time, the Bank of India predicts domestic prices in the next few months. The level will remain high. Analysts believe that India's economic performance in the second half of the year will largely depend on the prevention and control of the new crown pneumonia epidemic in India and the trend of inflation.
Domestic prices have risen again and again, and the high prices of edible oil, milk, gas and other daily necessities have made Indian consumers under the new crown pneumonia epidemic worse. This problem has become a hurdle on the road to India's economic recovery. The high level of inflation in India this round is the result of the two-way force of external and internal factors. The external factors mainly come from the international commodity market, and the internal factors are related to India's domestic policy considerations.
The latest issue of the Central Bank of India’s Financial Stability Report shows that the prices of international commodities such as crude oil, steel, iron ore, copper, and aluminum have risen significantly recently, while crude oil, petroleum products, and coal briquettes that have a greater impact on India’s wholesale prices They accounted for 21.6%, 5.8% and 4.7% of India's total imports respectively. Moreover, India is extremely dependent on crude oil imports, and as much as 82.8% of crude oil comes from imports. It can be said that high oil prices in the international market have directly become a "booster" for India's inflation level. At the same time, rising fuel prices have also significantly increased logistics costs, causing the prices of daily necessities such as milk to soar in India, making daily life more difficult for the poor and middle-income groups.
The rise in commodity prices "takes up" India's inflation level, and the Indian government has always been ambiguous in controlling prices in order to promote economic growth. This is also an important reason why it is difficult for prices to adjust. The former governor of the Bank of India, Langarajan, said that those who call for increased government spending to promote economic growth should have a higher tolerance for inflation. It can be seen that, to some extent, the Indian government has regarded rising inflation as a price that must be paid to ensure economic growth. Since the outbreak of the epidemic, the Central Bank of India has cut interest rates one after another until it reaches the lowest level in history of 4%, which has not moved for a long time, which has pushed up inflation. This is also an example.
The Asian Development Bank recently lowered India’s economic growth forecast for the 2021/2022 fiscal year again, from 11% to 10% before, and stated that this is due to the severe epidemic that has impacted domestic economic activities. The pressure of India’s economic recovery is still huge, and in the face of the thorny problem of maintaining growth or stabilizing prices, in the eyes of the Indian government and many economists in the country, the former may be a somewhat helpless option but they have to rely
However, after the outbreak of the new crown pneumonia epidemic, the poor and middle-income groups in India are the first to bear the brunt. Nowadays, the level of inflation remains high, and this group is the most injured. A considerable number of people in the economic circles in India have warned that in the future, there may be a K-shaped recovery trend in India where "the rich get richer and the poor get poorer". If the gap between the rich and the poor widens, the already weak domestic demand will be more difficult to stimulate. For India with such a huge population, its economic growth will be hindered in the long run. This is naturally not what the Indian authorities want to see. situation. For this reason, the Indian government must seriously consider how to seek a better balance between stimulating economic growth and controlling inflation through financial policies, and smoothly tide over this difficulty on the road to recovery. (Economic Daily-China Economic Net in Islamabad reporter Shi Puhao)