A maturing market amid the mayhem
Inflation down but reforms needed to boost demand
The latest inflation data for early March may please authorities ahead of national elections. Political leaders will trumpet the fact that the government’s efforts have yielded results and the demon of inflation has finally been tamed.
But the early March number throws up some serious concerns. It signifies that the Indian economy has entered a phase of deflation for a temporary period. Demand in the economy is extremely subdued and fresh efforts are needed to restore confidence.
Farm crop output is likely to be robust and this may help in moderating prices but the problems with regards to supply bottlenecks have hardly been addressed. Ports, roads and reforms in agriculture must therefore be the focus of the new government which assumes power after the April-May elections. Past experience has shown that a tardy monsoon can upset calculations overnight.
There is very little time to lose and massive reforms across all sectors are needed to get the economy moving again. Much will depend on the government which is voted in after the elections.
Such low level of wholesale price inflation, the most widely watched inflation measure in India, throws up another worry. Real interest rates are still high and authorities must nudge banks to lower them to push demand and restore confidence in the economy.
There is still room for more stimulus measures and the new government will have to immediately hit the ground running to sustain a 6-7 percent growth and protect jobs in a country which hardly has any social security.
The early March inflation data is a wake-up call for policymakers and the political class to embrace reforms much more than before.